I use OOO and iWork on my Mac. I use Office 2007 at work. I hate almost everything about Office 2007. Still, I plan to pick up a copy of MS Office for use at home. Why? I can get it at a steep discount and iWork doesn't quite do everything I need. I can confirm that iWork doesn't save to docx, xlsx and pptx formats. It can open them, but if I create an original doc in Pages, it only offers to save as .doc.
MS Office is fundamentally better in capability in 2 out of 3 applications: Word and Excel. iWork is fundamentally better in design and usability. But design and usability don't mean much if you simply can't do something like opening a doc at home and having it look exactly like it did at work. Will iWork ever kill MS Office? It is possible, but only if Apple decides to sell iWork for Windows and if they decide to go after the business market more aggressively. It could also happen if market share on the desktop flip-flops with Apple on top. Neither of these scenarios is very likely. And of course, every Office app is judged on how well it imports and exports M$ formats. Neither OOO nor iWork do this perfectly.
With the advent of a credible OS from M$, Windows 7, the pressure to switch has never been less urgent. For Apple to grow its market share, it needs to find a new "killer app" to differentiate itself from M$. The old days of "Windows simply doesn't work" are now history. OS X may be better than Windows 7 in many ways, but Windows 7 works. It's a good thing Apple's fortunes aren't tied to desktop market share. 😱 This is probably part of the reason Jobs views the iPad as so important. Windows doesn't have a clue when it comes to touch interfaces. OS X clearly does. If iPad takes off, Apple could get more "halo" sales from iPad users who are delighted with their iPads and decide to go "all in" on Apple computing. It was iPod that led to a lot of Apple's current desktop and notebook success. Still, iPads aren't cheap. And the present design means it is probably not going to be your "only" computer whereas a netbook could be an "only" computer. In summary, two major obstacles are in the way before iWork can make a dent in Office: OS/Office platform market share, and capability of iWork vs Office. Better usability is not a magic bullet.