For a while now, Microsoft has said that the experience on the iPhone would be similar to that in other mobile browsers--allowing document viewing, but not the editing and other features found in the full Web Apps.
Through some work, though, I managed to get the iPad to try to open up the full Office Web Apps. By clicking around various pages within Windows Live, I found some that had an option to click to switch to the "PC version" of the site. Doing so, and then navigating back to the Office tab allowed me to see what I could and could not force the iPad to do. I was unable to create and edit a new Word, PowerPoint, or OneNote document, but did manage to create and edit a basic Excel spreadsheet, even getting it to perform a simple calculation. (Four Web Apps minus three that don't work equals one that does.)
For more on this story, read Forcing Office Web Apps to open on an iPad on CNET News.