I remember back in the dot-com boom days one of the new-new things were ASPs, application service providers, who provide hosted applications to replace enterprise and desktop applications. In fact I was one of the team on such a venture developing a collaboration tool for small businesses.
When brainstorming over what applications were good candidates for web hosting, I remember we explicitly rejected word processing as not being suitable. But that was before AJAX.
Now, I am posting this entry using a service called Writely, which is a web-hosted word processor that allows multiple people to collaborate on writing a document. I can do all the usual styling like bold, italic, underline, different fonts, and different sizes. It is a well executed application, though still missing a lot of features like, as far as I can tell, spell checking and hyperlinks.