I do think that the Office team has made a quantum leap in the 2007 version. But the analogies to web applications are weak, and people really need to stop thinking that the popularity of the web is due to its crappy UI. I watch the same people who have only a little trouble with desktop apps struggle to find their way through massive web applications like eBay, and they flat-out refuse to even try to use online banking or billpay sites.
Sure, they can find their way around Google and most content sites, but those sites only do one thing. It’s disingenuous to compare them to full-scale applications like Excel or Photoshop (and if you’ll recall, people have tried to do that on the web and it’s tanked).
The web is popular -despite- its interface. It’s popular because (a) it’s accessible from anywhere, (b) doesn’t require any additional software to be installed, and © usually exists as an alternative to paperwork or commuting, not to a desktop app.