They've already bought Writely, which is an online wordprocessor (v good one, actually - it even does PDFs). And, as the link above shows, there's a spreadsheet imminent.
Begging the corporate question: what's an OS? That's so 20th C, man. Soon it will only be multimedia that requires an OS (ie. heavy processor/network stuff), and which OS would you choose for that? (Hint: check out these Final Cut Express demos)
Here's the question, though: how does this web app directly make revenue?
Google ads on the page? That's fine for a search results page, but for a productivity page? Imagine if Microsoft did banner ads in Office. Putting aside the outrage from license paying customers, I suspect it might bug your typical office drone too. So, what's the alternative? Charging for it? Come on, this is Google. They're the nice guys who give great stuff away for free, and you can even earn money from them. They can't charge us, or we'd boycott them, like the spoilt websurfers we are. So... maybe there's no direct revenue. Maybe it will all be funded from search page ad revenue. It certainly seems to be how Google Calendar is configured. Not sure how that will fly with investors. It certainly doesn't make much business sense: you want to keep the revenue as close to the costs in a diverse portfolio like Google's. So, what's the plan guys?