Google really needs to turn up the heat with Docs. The spreadsheet, etc need to get a lot better if they want to steal market share from Microsoft. Office is hard to beat.
But they have a pretty rock solid collab feature that is currently unmatched in any other office suite. Once you get the habit of working like that on certain projects, it's hard to go back to the old way of collaborating by sharing files.
Spreadsheet is the least polished app of all, but i think this is no coincidence. SpreadSheet is the app in which the functionality gap is the biggest, and also where user expectations are the most tainted by excel's idiosyncrasies. I wouldn't be surprised if the spreadsheet app doesn't get much love for a long time.
[1] http://www.joelonsoftware.com/articles/fog0000000339.html
I'm guessing this version of Office will be extremely flashy, and Google Docs will look like a 90s edition of WordPerfect by comparison.