As I point out in my Computerworld review of the Technical Preview of Office Web Apps, it's a solid, polished piece of work that faithfully reproduces Office documents, and sports a beautiful-looking interface, must like the client version of Office.
But there's an inexplicable flaw in Microsoft's Web-based suite --- it doesn't have the ability to synchronize your work in both Web-based and client-based versions of Office so that wherever you are, you always have the latest versions of your documents.
When you use both the client-based and Web-based Office, it is extremely easy to overwrite new versions of documents with older versions. It's also easy to accidentally begin working on an older version of a document, and then have to figure out how to merge two different versions of the same document. And if you work with others, the problem becomes magnified.
All this isn't a problem with Google Apps --- it's been designed for online and offline synchronization. True, the interface is far inferior to Office Web Apps, and the documents it creates aren't nearly as slick-looking. But here's a case where beauty is skin deep; automatic data synchronization is far more important than a pretty face.
It's hard to understand why Microsoft left synchronization out of the Office Web Apps feature set. It has a superb automatic synchronization tool, Windows Live Sync, and another one called Windows Live Mesh. It would only need to figure out a way to add their features to Office Web Apps.
At some point, Microsoft will be forced to add synchronization to Office Web Apps. But the longer it holds out, the more chance Google have to catch up.