Not only "free" apps are compeition
iWork is also competition for the Mac. Pages is still a pretty weak application, IMO, especially for the kinds of work I do, but Keynote blows PowerPoint away, and Numbers is a very interesting way to build spreadsheets that I think is much more productive than the way Excel does things (spreadsheets themselves can end up being your presentation, as opposed to cut and paste into a PPT like you have to do when presenting Excel data). Having said that, Excel is still much more feature rich than Numbers if you do really complicated sheets
But yes, I will not cry over the death of Entourage. What a horrible, horrible, horrible application.
Frankly, MS has to do *something* in this space if they want to stay relevant on the Mac (many would argue why bother since the Mac share is so small). I think their lack of fear about all things Apple has really hurt them - be it the iPod, the iPhone, or (even though many are mocking it), the iPad.
Snow Leopard integrated Exchange 2007 support into its native mail, calendar, and contacts applications (unfortunately, my company doesn't have Exchange 2007, so can't use the native apps and have to rely on Entourage (*shudders*))
I like this post-DOJ Microsoft, which actually appears to be listening to customers, as opposed to trying to harm the Mac so that you can't use them in the Enterprise. Who woulda thunk it?