Hey Paul,
Just because Microsoft sucks right now in Internet stuff and is not that flashy like the cute AJAX startups (who are dying like flies), doesn't means too much, we need to see how the winds are blowing:
a. You can't build an Office with AJAX. AJAX is too hard to program, relative to the functionality you get out of it. Heh, I am sure I will get a lot of smiles for this. The keyword is "relative". Btw, I have been doing AJAX in 2001, and it sucked big time.
To build a WebOffice, you need something much more reliable, faster and powerful than the shitty JavaScript. A development environment with static compile time checking, better control of machine resources, faster. A FLASHy virtual machine for example.
Google Apps (Sheets and Docs) are nothing more than toys, and they are locked in pit. They cannot grow larger than they currently are in an incremental manner.
It is a pity Google did not snatch Macromedia, for lack of vision. Now Microsoft is building their own lightweight virtual machine, for exactly this purpose: deliver large scale apps to the web.
b. .NET binding to the OS (the binding of Windows GUI to .NET 3.0). That's the single most aggresive move I have ever seen from a company. It goes like this: we are a monopolist of the OS market. Should you want to develop for our OS (which you must), you MUST use our developments tools and proprietary languages, which do not work on any other OSes. The monopoly is self-reinforcing, with one more leg added. The plan of the MS new boss is far-fetched (they mentioned 10 years), but it is sound.
The seeds are in place and the wind is blowing Microsoft's way, just give them time to grow.
So, I will start to respect Google's strategy the moment they push for the control of their underlying platform, making that little virtual machine.
Regards, Rares