I don't think its valid, saying, that all applications will be deployed off the web; that would be very wrong. The fact that Google docs hasn't really clicked just points to the fact that certain software makes sense to be offline. One reason why; user sometimes wants to be very close to his data.
The key to the future i believe is the right mix of offline and online capabilities in applications. Microsoft has been kind of late in putting offline capabilities to many of its products. But that doesn't mean they are dead; they have the resources and ability to create paradigm shifts in this business. The fact that a person like Ray Ozzie (who is more or less associated with network computing and collaboration) is now overlooking the software giant's product teams also sends indications that Microsoft will start looking into the online/offline match. Infact the concept of "internet services disrupted", term coined by Ray Ozzie in a recent talk, precisely shows the direction in which Microsoft is headed.