Microsoft has recognised the move to the cloud with the release of their free Office Web Apps on SkyDrive and the pay for Office 365 suite. With Office Web Apps you can create and edit Word, Excel,PowerPoint, and OneNote files online, in a familiar Microsoft Office environment. The Office 365 offers more options including Sharepoint and increased storage as well as Office 365 for education.
Here's a SkyDrive Word Document.
Here's an official Microsoft Video showing you the features of the Office Web Apps.