Office XP is an Office suite of productivity programs such as Word, Excel, etc. Windows XP is an operating system. Why Microsoft named both their new OS and office suite by the same name is anyone's guess.
There are office alternatives out there. Corel has a decent suite and users of Corel's Word Perfect, in my experience, prefer it to Microsoft's often un-user-friendly software. There is also Star Office which has open source code and older versions can be downloaded for free. E-Week'se-zine recently had an article showcasing the fact that Verizon saved several thousand dollars per workstation due to a different office suite that they had switched to.
Windows XP is better than previous OS's in its stability, however, like all Microsoft products, it isn't really written with security in mind. There are security holes constantly being found in all sorts of components to the software. The licensing is also a big issue with techies. Windows 2000's latest service pack basically allows MS to automatically update your machine whenever they feel like it, not after isolated testing by the techs to see if it works with your environment.
I think that MS drives the industry and controls it to a large extent, but good old American consumers love an underdog. I wouldn't rule out other providers of software while there is still freedom to choose. The pricing, licensing, and lack of security would cause any consumer to NOT purchase say a car or house if it had the same level of quality. If large businesses like Verizon move to other linux based software, others will see the savings and might follow suit. It's smart business...