AppleWorks should not be upgraded to directly compete with MS Office.
MS Office = people who need to be 100% compatible with MS Office on a daily/hourly basis, people who need advanced features, and people with Macs in a Windows dominated environment.
AppleWorks = people with mostly isolated use of their word processing, spreadsheet, etc...; and where the features of AppleWorks meet their needs.
MS Office = feature rich, maximum overkill, and new versions should expect fairly new hardware.
AppleWorks = lean, efficient, easier to use and as compatible as possible with older equipment.
MS Office = expensive
AppleWorks = cheap or free
MS Office makes money for Microsoft
AppleWorks helps sell Macs and through upgrades and sales makes enough money to pay for R&D.
Given these missions and evaluations, as well as the overwhelming domination in the marketplace, it makes sense only to have AppleWorks be upgraded to keep it within the same bounds and not compete head-to-head with what would be a losing battle.
Apple should find ways to upgrade AppleWorks that give it useful and unique features that make Windows users ask "how did you do that?" and the answer is "Oh, it's really easy with AppleWorks, but you NEED A MAC."
AppleWorks should be like iPhoto, iTunes, etc... wherein iPhoto is no PhotoShop, but to the person who can't afford/learn PhotoShop, iPhoto is like magic....and it can be positioned easily as uniquely Mac in all advertising.