The Mac OS X application suite iWork consists of two programs: Pages and Keynote.
Pages is a simple word processing application that has good looks and is easy to work with, but comes nowhere near OpenOffice.org Writer or Microsoft Word in terms of features.
Keynote is great presentation software. In my opinion it beats both OpenOffice.org Impress and Microsoft Powerpoint, hands tied to the back. The shows you can create with it are really impressive and in fact make a good showcase for Mac OS X's graphics capabilities.
However, Pages has quite a few bugs and lacks important features needed for writing larger documents (e.g. cross-references). There are improvements planned for iWork '07, but I doubt it will bring Pages to the feature level I would require for day-to-day text processing.
Both products have limited export features, with various bugs, and lacking OpenDocument support, for example.
Considering the low price of iWork, it seems the application suite is more a showcase for Mac OS X features than a real competitor to Microsoft Office and OpenOffice.org.
However, this may change, if Apple decides to open-source iWork. This may boost the development of iWork, allowing the community to fix bugs and add new features. Like MySQL, Apple could decide to ask money for support. Or they could even choose a license that is free for personal use and non-profit organisations but costs money for commercial organisations. There's all sorts of options.
Apple has experience with the open-source community, since they adapted Konqueror to become WebKit, the engine for their Safari browser. But then again, perhaps this is the reason they won't consider it...