I have posted something similar to this in other threads, but here is my take
In general...
If you need strict compatibility with MS Office for Windows, your best bet is to run Windows and MS Office with Boot Camp or virtualized with
Fusion/
Parallels/
Virtual Box (free)/
Crossover. This is the only way to ensure you are completely compatible with Office 2003 or 2007 on Windows. You can convert docs to .pdf, but that isn't always an option if you need collaboration.
If you need mild to good compatibility with MS Office for Windows, you can use Office 2004 or 2008 for the Mac, with the understanding they are not equivalents and there is little VBA support in 2004 and virtually none in 2008. Excel will be the primary difference more so than Word. Office for the Mac also has issues with Spaces. There are converters for .docx available.
If you want a MS Office-like interface, etc. then
Open Office/
Neo Office are good choices and they are free. But they will not provide strict compatibility with MS Office. They will however, give you a more Office-like experience. They are robust and complete packages from the Open Source community.
If you want the functionality of MS Office with a Mac experience, then iWork is the best bet. It is a great value for the cost. Pages is a great tool, and Keynote is superior to Powerpoint in my opinion. Numbers is good, but does not provide the power of Excel. You can check out a comparison here:
MR Guide - iWork v. MS Office. Nothing compares really to Excel on Windows if you need all of the features.
You can also check out
Mariner Write and Mariner Calc. Both are decent alternatives, but are not as widely used.
If you just looking for a nice word processing, then
Bean is free.
Woof, Woof - Dawg