Google Docs is constantly improving and have built up much of the basic functionality of excel but it will be a little while before it can really match feature for feature.

Agreed, I also don't see much advantage in word processing or spreadsheets on the cloud.

The only thing I can think of is some light-weight collaboration, but more involved collaboration is better done using version control anyway. This is outweighed by the disadvantages of having to deal with clunky Javascript/Flash apps and slow internet connsections.

There are many cool things to be done on the cloud, but Office-style apps just don't seem to be a good example.

The cloud is ominous but cloud/asp/saas based services do more for you. For instance Google Docs remembers every revision of a document, has access to that document from everywhere, no need to clutter up email servers and people can edit it at the same time or share it.

Also, let's say you have a massive spreadsheet that would bog down you local machine. When perfected spreadsheets and data will be like 3D rendering in the cloud, long processes can be divided up into small chunks and distributed across many servers to process it. There are 3D rendering network farms like this, you upload a model and it renders very fast in a grid on machines that are not economical to buy except for in a large groups.

It might seem like overkill now but when you are dealing with terabytes of data in the future and very distributed teams the cloud is a natural evolution. It isn't an end all be all but it has huge ability to take processing from one machine and spread it around almost like peer to peer did to downloading a file.