This is a major deal! I encourage people to sign up for the Writely beta. If Google adds spreadsheet/database/presentation software, then they will have an Office suite on the Web.
Considering the entry point for Office 2007 is at minimum $150, this will have an impact on Microsoft's Office revenue stream. Maybe corporations will avoid this due to security concerns but I think this will be HUGE!
I see this as a serious move by Google that can only benefit them while taking away market share from Microsoft.