The practice of leasing software has been a mainstay of corporate computing for a long time. It's something the vendors, and in this case Microsoft, are trying to move toward the consumer space.
I realize I tread on dangerous ground in a thread of this content, so I'll word this lightly. I imagine the public would finally consider alternate operating systems. I can't imagine why the public actually needs Windows specifically. Microsoft doesn't respect that, or seem to be aware of it, despite certain portable computers that already have these alternatives, and Microsoft's own problems competing in alternate formats.
To answer the other side of your question, though...I'm not sure why people seem compelled to continually upgrade an office suite, aside from protection against viruses conveyed in documents. Certainly feature set hasn't really required extension for 99.9% of the people using a word processor or spreadsheet. However, for those who do want to continually upgrade to the latest and greatest, it can be cheaper to consider the software as leased rather than purchased. Psychologically consumers are prone to think of wasted investments in older versions they no longer use, whereas leased software just convinces them they're always using the most current version without thinking about abandoned versions of the past.
Really, I think the public's dependence on Windows and Office demonstrate the power of marketing and the absence of common sense, reasoned thinking and prudent choice. That was also Bill Gate's business genius at work in the early phases.
