Okay, maybe "death" is a bit severe.  But certainly, I think in the next few years (if not months), Office will start to lose marketshare...significantly.

Now don't get me wrong; I love Office (okay, not really, but I work with it on a daily basis and the whole product strategy for my group revolves around the Office client and server suite), but there are some severe usability issues which have, amazingly, to this day, been pretty much unresolved.

The crux of the shortcomings of Office (aside from interoperability pre-12) is really document sharing.

Today, in the Office world, if you want to share documents (either with yourself (i.e. work on a different machine) or others), you really only have a few options:

1. You can access your desktop remotely using a remote desktop client.  This sucks for a variety of reasons including responsiveness and the require setup to enable a remote access scenario.  It may not even be possible due to corporate firewalls.
2. Email the document to yourself and/or collaborators.  This is what most people do today, I would gather.  It's one of the most annoying things that I deal with because I end up with a folder with a bunch of documents title "Spec rev.1", "Spec rev.2" and so on.  Not to mention what the clusterfuck that happens if I modify the document and rename it with "rev.X" and another collaborator does the same.  It sucks...but even I've been known to do this.
3. Copy the document to a physical medium and pass it around.  This includes CDs, USB drives, external drives, etc.  I do this quite often when I travel and I know I will need to prepare a document.  But it sucks.
4. Use a corporate SharePoint site to share your document.  This is a great solution...if your company has a SharePoint site.  What if you're not a full Microsoft shop?  What if you work for a small company?  It also means you'll probably need VPN access, which is generally annoying.  For the record, I've been using Office personally and professionally for more than 10 years now and I've never shared a document using this method.
5. Use Office Live!  This is a relatively new offering from Microsoft who finally realized "Hey, maybe the rest of the non-corporate world would also like to share documents in a non-shitty way!" However, what sucks about this is that you still need to have the Office client...we'll touch on this point in a bit.
6. Use some sort of remote file share (FTP location, network file share, etc.).  This has various perils as well in addition to the inconvenience of having to have a VPN connection.

None of these options are really appealing, but until recently, there really wasn't a choice.  Regardless of what desktop processor you use, you're pretty much constrained to the same set of options (you can replace SharePoint with whatever web platform your client integrates with).

This sucks, for the reasons listed above, but it also sucks because it means that you have to lug around your laptop everywhere you go to work on documents.  It's the reason why you see business people scrunched up in coach, contorting their bodies and praying that the person in front doesn't put their seat back so they can fold out their laptop.  The desktop document processor client makes us all slaves.

But the future is coming.  For personal use, I don't think I'll ever author another Word document in Office ever again.  Both Google Docs and Zoho offer what I need so far as basic document processing goes and I have the added convenience of being able to easily share documents with others.  There's also the absolute coolness of being able to edit the same document in a live session with your collaborators.  This alone is not enough to change how we work with documents.  The iPhone and the impending release of Android (along with the next generatin of smart phones) will leave the Office stack in the dust.

Connectivity is ever increasing. With cheap, unlimited data plans now and non-neutered mobile browsers, instead of doing the stupid shit listed above, you can just connect to Google Docs or Zoho and edit your documents directly. You can share your documents without having to have a SharePoint deployment (good for small business and non-Microsoft solutions deployments). You can have access to your documents from anywhere where you have a cell or WiFi connection (which for most business people, is everywhere).

Why bust out your laptop on a crowded plane (unless you have the luxury of sitting in business class) to review or make small edits to a document when you can do it on your wifi connected phone? Why lug your laptop around when 90% of the functionality that you need for day to day business can be accomplished on a phone? Android and the next generation of smartphones will cause a big shift in document processor usage in time, IMO. Microsoft has to start thinking heavily about a web based Office suite (or purchasing Zoho) or else they'll start losing ground in their bread and butter application suite.

For the time being, both Zoho and Google Docs are missing some core bits (mostly around security, but also integration of more complex "compound content"), but for a good percentage of document processing needs, Office has become irrelevant (this is not to say that it won't take a really, really, really long time before Office loses market share to any web based processor).