Challenger - "Liberate your desktop" has a demo of a web based desktop. It has a basic word processor (similar to notepad), some games and a file browsing utility. It has the ability to change interfaces as well... to give you the look/feel of Solaris/Suse/XP/95. Kind-of interesting. The developer, it seems, is sweedish. I like the concept... it proves that you can bring a desktop experience to a web browser (it's way cool w/ the web browser in "full-screen" mode). However... it fallls short on several accounts:
Without some sort of plug-in architechture that would allow for the addition of outside applications. I don't see any evidence that you would be able to build your own applications or include applications from other developers. Though, it says that applications are "downloaded as they are needed".
On that note... you have to move to the applications on hand. While notepad is good for a few notes here or there... it can't replace Word or OOo:Writer.
It is not cross-browser. It does seem to work in Maxthon (uses ie's engine), but will not work on Firefox *sniff*.

The applications (Tetris, Snake and text editor) do seem to respond well... but this is likely because they are actually running on local code.

Again, an interesting approach... but it would have a long way to go before I would consider it for a replacement of my desktop at a remote site. One major flaw is the simple fact that I would need IE. If I didn't... I could tote a Linux Live-CD with me and sit in-front of any computer and play nice w/ my system at home. Seems a no-go for now though on that front.

How long till we see a word processor for the web that writes standard xml docs that can be downloaded and opened w/ Word or Writer? This shows that it may not be too far at all.