Software as a service may be Microsoft's dream, but other companies are getting there faster. Adobe, for instance, is preparing to move their entire company over to a subscription web-based service within the next decade.
At the Web 2.0 Summit, an executive for Adobe said that as the Internet continues to evolve it will become a more optimal solution for delivering software, and that ultimately the desktop as it stands will be "limited" in comparison. While one can argue the merits of paying every month just to use a single piece of software, there are also arguments to the benefits it could provide. For instance, a small monthly fee that guarantees you the ability to always use the latest version of a program without having to pay for new "versions" (ala MS Office) might be a welcome change to existing models.
Online Photoshop? Online Dreamweaver? That is their goal - and I do concur that moving software online is going to be a reality sooner rather than later.