In this story about the Sun-Google deal, Jonathan Schwartz (COO of Sun Microsystems) was asked about web-based Office applications and he replied: "Is AJAX or a browser an appropriate vehicle for heavyweight office productivity software? Absolutely not". If that isn't a compelling indictment against the webification of Office applications, I don't know what is. I guess this shouldn't really be a surprising response given Sun's experience with StarPortal a few years ago which was an utter failure.
In my previous blog where I challenged any proponent of the client-less web-based Office application to drink their own Kool-Aid and stop using their traditional desktop applications, I got some responses from people that liked the idea of web-based Office but not a single one of them actually accepted my challenge. The only decent implementation of a clientless Office application with a rich user interface I've ever seen is Microsoft Office delivered via Citrix or Terminal Services but even that was never too popular.
Short of using Citrix, the only thing that would come close to delivering a decent client-less experience is Macromedia flash but coding such a beast is quite a challenge and it's much easier to implement something using screen push technology like Citrix. The problem with the Citrix or Terminal server client is that it still requires a dumb terminal with high-end graphics from companies like Wyse that typically costs more than most home PCs. Flash also requires a computer that can process the flash and you could have just as easily installed a real Office suite if you simply add a $50 hard drive in the computer. Given these market realities, this is why the first Network Computer never really took off in the first place out side of Sun's campus. Nobody wants a glorified dumb terminal that costs more than many full blown PCs.
What seems to be happening with the Sun-Google alliance is that they will both put some work in to developing OpenOffice.org which is a traditional desktop client. Given Schwartz's lack of confidence on web-based Office applications, there is absolutely nothing that would indicate some kind of online Google-Office in the foreseeable future. A Sun-Google branded OpenOffice.org might have a chance at getting some traction against Microsoft Office, but that's a far cry from all the hype of the clientless Office and the death of the PC.