Very true. But the quality of Apple's own replacements (like Keynote) and the ease with which they can interoperate with Microsoft Office (Keynote is a better Powerpoint than Powerpoint) makes the transition very easy. Add competitive pricing to this and Microsoft has a real problem even here.
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I would think free alternatives like Google Docs/Zoho probably scare MS more in the long term. I'm still skeptical anything will replace MS office in the foreseeable future (that's just my nature I guess) but I imagine if anything does, it will be something free.
The challenge of iWorks for Microsoft is that Microsoft can no longer hold a gun to Apple's head, threatening the removal of Office from the Mac platform if Apple doesn't play ball in other areas (licensing Exchange for the iPhone, for example). Or rather, they still can at the moment (iWorks is not a perfect drop in replacement for Office... yet!) but as time goes by, that threat becomes less and less impressive.
Of course, Google Docs/Open Office also have a role to play here. Microsoft is slowly but surely losing it's hegemony.
Is it? Apple went ahead and implemented exchange for the iPhone, not because they have a gun to their head, but because businesses can't live without it.
It's easy to point at all of the new Office competitors and say MS is doomed, but none of them have any significant market share yet. OOO has been around forever, and even Google Docs and Zoho are past the stage where we'd call them new.
When Apple implemented Exchange support for the iPhone, you will have noticed that they introduced at the same time another way of getting push email to the iPhone - they explicitly created an escape route if people want to leave Windows. Apple will ot fall into the trap of depending on Microsoft again in a hurry.
As for the various office productivity packages - sure, they've been around for quite some time now without really making much of an impact, but things starting to change. Firstly, Microsoft dropped the ball on the Mac platform by dropping VBA support for the Mac. If you want to use VBA on the Mac now, the best option is OpenOffice, not MS Office.
Secondly, those packages have been steadily improving - for me, it's only really been in the last year or so that OOO has got to the point that it could be considered a serious competitor to MS. You have surely noticed the massive discounts that MS has had to give for Office to keep it installed in large organisations recently - there have been plenty of examples in the press.