Office Live Workspace to be out by year-end
Office Live Workspace is NOT a web-based version of Office. Instead, it is something of an Office-add-on (though you can use it on a computer that does not have Office installed). You can upload Office documents (Word, Excel and Powerpoint files) to Office Live Workspace and then access them from another computer (so it is a virtual flash drive of sorts) or grant permission for other users to access your documents. They can then edit and upload versions and share new documents with you.
Live documents cannot be edited directly in OLW, though you can create "web notes" which are similar to Google Docs documents and spreadsheets or "web lists" -- that as of right now don't do calculations. You can also comment on an Office file, so even if you don't have access to Word to immediately edit a document, you can comment on what changes need to be made.
I have an Office Live Workspace account, but I have to admit, it has received little use. It isn't so much that Google Docs is that much better -- the spreadsheet and forms options are, the word processing is about the same -- it is just more ubiquitous and has become a more streamlined part of my workflow.
If you have a Windows Live ID (nee Passport), you can use that to sign-up or sing into the Office Live Workspace beta. It is aimed at Windows users, but works fine on a Mac running Safari (and works with Mac formatted Office documents).