Can your word processor do this? Of course it can. The OneNote Web App doesn't deserve the name.
Office Web Apps: The bigger picture To be fair, there's an important point to be made here. If Microsoft has failed to deliver a Web-based user experience to compare with its desktop Office 2010 suite, none of its competitors have, either. And maybe that's what we're meant to take away from all this: If Microsoft can't do it, who can?
But if that's the message Microsoft hopes to send, something about it rings hollow. Take away the glitzy Office 2010 look-and-feel and the Office Web Apps achieve nothing that Google Docs hasn't achieved already. As document editors they not only can't match the desktop Office, but they don't perform any better than Google Docs; in some ways, they feel more awkward and half-baked. About the only advantage Microsoft can claim is that it can display Office 2010 files better than any of its competitors -- but we knew that already.
If Microsoft is sending a mixed message, it's because it wants to have its cake and eat it too. By offering Web-based apps with a familiar Office UI, it hopes to reassure customers who might be tempted to move to Google Docs. More than anything, however, the Office Web Apps merely underscore the Office brand, and in particular the Office file formats, which have served to cement Microsoft's market dominance for decades. So long as Microsoft does .docx, .xlsx, and .pptx better than anyone, wholesale migration to Google Docs will remain a chore, particularly for Microsoft's bread-and-butter business customers.
Will anyone use the Office Web Apps? Of course. SkyDrive is a useful way to share files with friends and colleagues, and the ability -- however limited -- to edit those files in the browser will be welcome to anyone who travels or switches computers often. Over time the Web Apps will improve, and they may eventually become an important part of the overall Office strategy.
If you're actively searching for an alternative to Microsoft Office lock-in, however, don't be distracted by the Office Web Apps. If you can deal with their primitive feature set, they may save you the cost of a desktop Office 2010 installation, but they do nothing to address the real issues at stake.