For basic UI its really no competition. Above is the very basic and, to my opinion somewhat confusing Google Docs interface. Below the much better laid out Windows Live workspace with better graphics, track changes and on page video help.
So why would anyone go to Google Docs? Well Google Docs has many publishing features including revisions and save as HTML that are beyond Window Live's basic workspace, which is more like a SharePoint 2003 workspace. Also Google Docs runs great on Linux. I have to confess that most of my computers are Linux boxes so as you can see I use Google Docs a great deal. That said I collaborate on Windows Live using Windows XP and Office 2003 and it works very well.
As is typical today if you could combine Google and Microsoft on this one you would have a perfect tool.
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