Microsoft Works is something I personally despise with all my heart. While it is compatible with ordinary Word and Excel documents, it also has its own built-in file format that can't really be read or edited by anything. I recall several occasions on which I had to help people out because they received documents in a weird format that they could not open - even though the people sending it to them claimed they had used "Microsoft Word" to create the document.
The situation when it comes to file format compatibility between Works and Office is complicated and annoying. In a table (made in Excel 2007, darn it!), it looks something like this:
Microsoft Works, at version 9.0, is quite outdated. Version 9.0 offered Windows Vista compatibility, but it for instance still sports Windows 95-esque icon design. As an experiment, Works is currently also available as an ad-supported version, but only in some countries and it's limited to OEMs.
Microsoft Office 2010 Starter is supposed to remedy all of this. It is a true Office product - so not a rebranded Works suite - but is cheap and ad-supported. Its feature set will also be limited compared to the regular versions of the product line. It will sports the ribbon user interface and use regular Office file formats.
I guess Microsoft Works no longer... Works. Yes, I'm here all week.
Microsoft also announced the concept of Product Key Cards, single-license cards that allow people to upgrade to one of the three full versions of Microsoft Office 2010, (Home & Student, Home & Business 2010, Professional). These cards will be sold through OEMs and at retail outlets. Whether these cards allow you to upgrade from a trial version to one of the full versions, or also from Starter is not yet clear.
Another product that's coming from the Office department is Click-to-Run, a downloadable version of Office that uses virtualisation to run side-by-side with previous versions, so that users can test it out without harming their current installation. It also uses streaming technology so that users can start using it right away, even before the download is finished.
Microsoft Office 2010 will arrive in the first half of next year, and will be the first release in both 32bit and 64bit. In what we would really want Windows to be like, the 32bit and 64bit versions ship on the same DVD.