Office 2010 is going to start to bring the world of the office application into the Web browser and vice versa (meaning Microsoft is going to make every effort to blur the line between the office suite and the web browser).
Microsoft is making a concerted effort to make sure the transition is as smooth as possible with the introduction of what they are calling Office Web apps.
According to Microsoft the office Web app extends your Microsoft office experience to the web browser which is what Google is also trying to do however I think Google is trying to do an operating system inside of a browser whereas Microsoft is just trying to take the office suite an integrated part of the browser creating for the end-user what I like to call a "single pane of glass interface". The more information you can cram onto a single screen the better the end-user likes it from my experience.