OpenOffice is fully compatible with MS office and allows you to save in the various file formats which are associated with MS programs. With MS and Novell (owners of Suse Linux) now in a 'partnership' this looks likely to continue.
If you want a truly free setup use Linux, there are may flavours - I prefer Suse but that is an opinion. It used to be a techies tool but now it's very friendly and easy to use. It can be downloaded for free. Support and regular updates can be got for $50 but that is FAR cheaper than XP or Vista. Also the spyware, viruses etc etc. which plague windows users are much less prevelant on Linux.
If you can get past the market speak -
http://www.novell.com/products/desktop/ gives you a good idea. Click on view demo.
The disadvantages - well, it's not for games and there is a slight learning curve but if you want mainly office tools and email - go Linux.
Geek speak over. We'll be down in 10 days.....WooHoo!!!