This lifehacker article details how to get the best of both Google Docs and Microsoft Office. It is pretty interesting; Lifehacker recommends downloading a program called OffiSync which will allow you to open and save Google Docs in Microsoft Office.
This beats Microsoft's Office Live Add-in which is crazy slow and buggy. The only problem with the free version is it doesn't allow collaboration. I guess that's how they make money!
Looks like Office 2010 doesn't work with OffiSync. I haven't checked to see if there is a newer version, instead I just removed it from my computers.