Nice side effect too if getting everyone hooked on H.264 since Apple is one of the patent holders that gets paid more when that becomes the dominate format (for the video aspect). Likewise, flipping some folks from Flash based games/application to proprietary iPhoneOS games ... also happens to leave more money jingling in Apple's pocket too.
Adobe was an easy target. Flash was a big sphere of complacency (everyone did Flash because everyone else did Flash ). Apple is also going to get a better Flash implementation out this too. ( Adobe was dragging its feet on making it better across platforms).
The iPad was a nice inflection point to stir the pot.
Of course, Flash provides H.264 support also.

The PC version runs fairly well, and with regards to the Mac implementation of Flash, as I've said, there's no technical reason it shouldn't run well. One of the two companies is essentially crippling its performance. Initially I honestly thought it was Adobe, but for the past few years now I've generally taken the viewpoint that it's Apple.
I will say one thing Apple has often done well is generally push for support of certain new technologies/etc. When Apple themselves have generally tried to push their own propriety hardware/software, it often hasn't turned out well. But when they've pushed what's essentially an industry standard early, the results are generally good.
It won't radically turn the tables, but may give incremental push for iWork on Mac OS. For folks who really only need a subset and the occasional home office format reader it will suffice. And it is cheaper.
Oh, I don't disagree that it won't have an effect on iWork for OS X. It's simply not going to be some huge driving force behind a huge uptake in iWork for OS X.
iWork on Mac OS X isn't radically killing off Mac Office but does cut a chunk out of the the lower end on the Mac Office Home:Student edition.
iWork is priced at $79 versus the $100+ for Home:Student. The iPad is priced even lower still. That has to be shaving off some sales for Mac BU.
Questionable strategic move for Microsoft to follow Apple deeper into their home canyon with a 3rd platform to port Office to.
I think people over-state how much effect iWork really has. In regards to the student version of Office, sure, official retail price it's fairly high. But for those it's actually targeted at, students, you can generally walk into any university or community college's bookstore/computer store, and pick up a copy for cheap. The university I went to, the full version of Office for Mac 2008 is currently available for $65. I'm sure prices vary per institution, but still, if it's one thing Microsoft has usually been well known for, it's for providing fairly cheap copies of its software to students/teachers/etc. (for comparison, Windows 7 Professional Full is $35, while it's retail MSRP is what, $300?).
Even more so if Windows7 Mobile or a much more touch target version of Windows Mobile comes out and targets similar form factors as the iPad. Working to have a version of Office Touch would be much more of a win/win for microsoft. As oppose to propping up the iPhoneOS even more (when their mobile platform is so far behind.
Microsoft ultimately cares about one thing: making money. And the iPad is in an entirely different market from that of what Windows Phone 7 is, so I don't think that's really part of it. There are Windows 7-based slates coming out, and if anything Microsoft will probably wait to see what type of sales those have. Ultimately though, even iWork for the iPad is fairly basic in functionality, and thus an iPad Word, or Excel, or PowerPoint, isn't going to be much different.
I don't think Microsoft is just going to sit back and let Android win in the Open Vendor Mobile platform space. Surely they have blundered, but they have lots of resources to effect a recovery if get their head screwed on straight. Especially if Android blundered in the next year or so. ( Ironically, if Apple manages to force HTC off of Android they would likely jump straight back into Windows Mobile where they were before. A kneejerk goof ball move by Apple. HTC was helping to kill of Windows Mobile by making the switch they did. If just stalling and inflating FUD then it may work for a while.)
HTC is still making Windows Mobile devices, and has plans for Windows Phone 7 devices, so I'm not sure where you're getting the idea that "HTC was helping to kill of Windows Mobile". HTC supports multiple OS', they only care about making profit, not the OS from which that profit comes from.
I honestly think, ultimately, Android is going to win no matter what. Apple and Microsoft both want closed ecosystems, where they maintain complete control. It helps for stability, but word of mouth regarding Android is generally good, and I've yet to meet anyone who has had anything but generally positive feelings about it when using it (sure, people have complaints, but people have complaints about the iPhone OS also, and that hasn't stopped it from accomplishing what it has).
My honest viewpoint is that, what Microsoft was in the 90s/early 2000s (a large corporation that basically dictated changes and had considerable influence in the IT industry), is ultimately what Google will become. Apple as it is now, in regards to mobile devices, reminds me of how Palm basically was for the mid-to-late 90s and early 2000s. Google, however, even with their "do no evil" mantra, is fairly insidious. More and more of your educational institutions are providing students with institution-customized Google accounts for their email, etc., and thus you're having large segments of current and future students who will essentially become acclimated to Google's services. Then, as they get older and move out into their respective industries, they'll essentially be most comfortable with what Google provides (similar to how many of your enterprise workers today are comfortable with Office, since it's been the standard for the last 12-15 years). Thus, why not buy a smartphone that fully integrates with your Google services, or a netbook/touch screen system that is powered by a Google OS, fully interconnected with Google services. I don't know, a part of me thinks we're heading towards a very Google-centric world.