Is this not a similar concept to the AOL one which supplies its "own" browser, email client Etc etc. This speculation just takes it one step on to include the "basic" WP and Spreadsheet functions as used by granny.
I can see a split between users who just want the very basics and users who use digital images, video and "power" tools. I see Microsoft targeting the second group and conceding the first group to users who find Open Office too complex. Lets face it its
the second group who are more likely to have and spend money.
Just my 2p worth