Here is a summary of my current thoughts on the words inspiration, authority, infallibility, and inerrancy as they relate to Scripture. I submit them to the body of Christ as part of the ongoing dialog of the church.
1. It seems to me that there are two approaches to the Bible in relation to these "power" words. The first is that we need to get the words straight and then we can read the Bible. Perhaps I am unable to see the cultural glasses I am wearing but I resist this approach because, to me, it suggests that I can't let the Bible say what it says. I have to construct an elaborate system of electric fences and barbed wire before I try to interpret the biblical text.
In our modern context, I see debates over these sorts of words as a defensive mechanism against modernism or, to be more precise, against the rise of the historical-contextual method of reading the Bible. In other words, these words set up boundaries for how you can and cannot interpret the Bible in its historical context. Again, this is my opinion and one that should be weighed carefully. To me, the text meant what it meant. If the original authors and audiences understood it, then those meanings were a function of the language and contexts of that time.
2. So what is inspiration then? For me it becomes, first, a contextual inspiration, inspiration to speak to a specific time and place. It is a mysterious cooperation of the human and divine. The vocabulary and thought patterns are both those of the human author and yet guided by the Holy Spirit. At times I think the Spirit wanted specific wording; at times I suspect he was content for a number of different possible wordings.
The first inspiration was an "incarnated" inspiration. That is to say, it came largely within the worldview categories of the original audiences (heaven is up, the world is flat, the dead are "under the earth").
But I believe God had more in mind than just the initial audiences. He knew everyone who would read those words for the centuries to come. He planted meanings that would jump out at the earliest Christians as they scoured the Bible for truths about Jesus. Who knows, perhaps he even planted specific wordings with you and me specifically in mind. Again, these are my perspectives, to be weighed.
3. Scripture is authoritative because God is authoritative. IMO, a premodern reader reads the text as God's direct commands to him or her. In context, these were commands in specific contexts and so, to be true to their actual meaning, we have to understand the principles behind the precepts to apply them appropriately. Just doing what they did may not be truly doing what they did in a different context.
Authority relates most specifically to biblical material that is in the form of command. A narrative can have some authoritative implications but it is more indirect. Again, it can get complicated, IMO. The authority of the commands to sacrifice in Leviticus has to be processed through the fact that Christ died for our sins as the sacrifice to end all sacrifices. So the authority of Leviticus is the need for me to trust on Jesus for the atonement of my sins.
4. Infallibility relates to the fact that God's word never fails (Isaiah 55:11). It always accomplishes what it sets out to do. So when God makes a promise in Scripture, it will not fail within the parameters he has set for it (sometimes his promises and threats of judgment are conditional on our response, as with the threat of destruction on Nineveh in Jonah).
5. Similarly, when the purpose of God's word is to relate truth or information, it is without error. I believe these truths, as I said, come in incarnated form. In other words, we have to distinguish the truth from the clothing in which it comes. We need to know the parameters of what is being said. Is the statement that a mustard seed is the smallest of seeds really a comment about botany? I don't think that's the point.
6. Finally, when 2 Timothy 3:16 says that all Scripture is inspired and profitable for instruction, correction, reproof, and training in righteousness, I don't think we should assume that Paul or the biblical authors always saw this truth on a literal level. That is to say, many of the truths of Scripture were on a spiritual level. IMO, there is a good deal of circularity in the way some authors use this text as an endorsement of a particular modernist hermeneutic. In the case of "don't muzzle the ox," the biggest inspired truth Paul saw for the Corinthians had to do with supporting your ministers materially--a spiritual rather than literal meaning of the text (1 Cor. 9:9-10).
So those are a few of my thoughts at this point on the journey...