OK, that's not quite true, but iWorks '09 is the first release for which that's not a ridiculous statement. Very briefly, I find Pages much nicer than Word, Numbers about equal to Excel (I use both, depending on my needs), and Keynote not quite as useful as PowerPoint. (This is true for both Office '08 and '04.)

I use Pages to write scientific papers and documents. I need moderately fancy layout capabilities (to incorporate graphics into my documents) and aside from that I need it to stay out of my way. Pages loads much faster and is much more responsive than Word, and it's more stable. Incorporating graphics into my documents is so much easier than Word I can't begin to tell you how much time I've saved. Importing and exporting from and to Word is seamless (occasionally there are notes that something didn't import perfectly, but I can rarely spot the difference even when it's flagged). Exporting to Word on the fly -- directly to email, for example -- is effortless and completely solves the problem of collaboration. In earlier versions of iWorks I had problems with references and bibliographies, but Bookends (from Sonny Software) works fine with '09. (I understand Endnote does as well, but haven't tried it.) I only fire up Word these days when I forget and double-click on a doc instead of the faster right-clicking and opening in Pages.

Numbers has finally grown up. I couldn't use the previous version because it couldn't do a number of things (error bars and trend lines were the two worst, as I recall) but they're now working fine. There are still a couple problems -- Excel imports CSV and tab-delimited files much better -- but Numbers' workflow and model seems much more sensible now that I'm used to it. Again, Numbers launches faster and is more responsive and stable than Excel. I use Numbers for about 80% of my charting/spreadsheet needs.

Keynote, I rarely use, though it's certainly not bad. PowerPoint seems a little more versatile, and though Keynote probably has better templates and transitions, I don't use templates or transitions much. Powerpoint is nicer for exporting in different formats (e.g. as notes) which is important since it lets me output my lectures as notes very easily.

All in all, the package as a whole is as useful as Office. Depending on your specific needs you might have some requirement for an Office feature that's not present in iWorks, but for the vast majority I think iWorks would be at least as function, and I think for almost everyone it's going to be faster, more responsive, and just easier to use.