Yes, Microsoft Office is a powerful and rich suite of "desktop productivity" applications; so much so that most of the user base uses a small fraction of the functionality in there. This is especially true of educational users, where you find documents full of manually tabbed and highlighted documents, spreadsheets used as databases, etc.
Google Docs has just about all of the functionality that the average Microsoft Office user will ever need or discover already in it. Whether it needs the other 95% of the features in Word is debatable, but I'm sure Google's user base will tell Google about the most important 5% they're missing.
Docs already has one killer feature Word (et al) has struggled with for their entire existence: live document collaboration. If you create a Google Doc (word processor, spreadsheet, whatever) and share it with other users, you can both edit the SAME DOCUMENT at the same time. If you're working close enough together, you can actually see the other users changes updated on your screen in (near) real time. Try it, it's pretty amazing.
Anyone who has ever tried to use the change tracking and change merging features of Word knows that this is one of the surest paths to a crash followed by an unrecoverable documented known to Microsoft users. Plus, all that change tracking and merging is a pretty poor excuse for real document collaboration, even if it did work.
I watch my daughter (8th grade) email school projects back and forth with her classmates and see them fall into the same sort of document merging hell that has plagued my professional life for going on 20 years now, and am glad Google has finally solved this problem, for school districts that are run smartly enough to take advantage of it. Yes, I realize some rural school districts may have limitations that preclude using Google Docs, fortunately that's not true for us, where the average high school draws students from a 3-mile radius.
Rest assured that should my daughters school attempt to force us to pay Microsoft for the privilege of her education when she begins high school next year, we will flatly refuse. And that, my dear friends, is the number one reason why OpenOffice and/or Google Docs are the only acceptable "productivity solutions" for public schools: Nobody, and I do mean NOBODY, should have to pay Microsoft for the privilege of being educated by a school system they've already paid for with their taxes.
