Both products, Office and iWork, are great Office Suites. I have both on my Mac. When I need something that is compatible with work stuff (which is mostly on a Windows computer) I use Office 2011. When I need something for personal use I use iWork.
iWork is a lot easier and is more intuitive to use than Office, which to me seems more rigid - especially in Word. The desktop publishing abilities are much easier and far superior in Pages. Excel offers a lot more features than Numbers, but Numbers is easier when you want more than one table on a page. Keynote is a better product than PowerPoint on any given day. Outlook on the Mac has potential, but right now it just doesn't cut it.
Not sure what else Apple could do to upgrade iWork and keep it simple. Sure there are features in Office I like and wish were in Numbers, but at the same time I think that they would weigh down iWork and make it as cumbersome to use as Office.
I was a early Mac adopter in the 80's, but in the mid 90's switched to Windows because I just couldn't afford a new Mac after a component of my Mac died. I used to love using a "Works" program that Apple made back then. When I went to Windows I started using the Windows version of Office and became comfortable with Excel and Word and lived by Outlook with it's task and calendar management. A year ago I switched back to Mac and my Mac came with iWork, and through Microsoft's HUP program at work I was able to get Office:mac 2011. Using iWork brought back the "ease of use" factor that I remembered from my previous stuff. Dragging and dropping things in place and arrange them til they look just right is easy. I prefer Pages to Word for that respect. I do however prefer Excel to Numbers, only because I used Excel the most on Windows Office and it is more compatible at work.
Everyone has their preferences and both iWork and Office are both great products. Office just happens to be a little more bloated than it really needs to be, while iWork seems to be just right, but could be better with a few tweaks and a few new features as long as they don't hinder it's ease of usability.