To be frank, Microsoft sucks at it. I've used Google Docs in the past to collaborate on documents. It was straight forward and easy to use.
Just now I thought I'd try using Skydrive for collaboration. Using Office 2010, two of us opened a document edited it and tried to save it. The upload manager got angry and said the file was locked by another user. We alternated closing the file to see if we could save it to skydrive again, we couldn't. We tried to discard the changes, but that failed because it said the file was open. That was horribly too complicated for something that should have been so simple.
So I decided to try Docs.com out. It seems more feature complete than Skydrive. We tried editing there, but that failed instantly...
I clicked the "Open in Word" button on the website, and was presented with
I smell a failure coming along. Almost everyone knows how to use your competitors offering. No one has heard of Skydrive let alone the features for collaboration built into them. They shouldn't even bother.