Open Office does not automatically save to MS Word or Excel formats, but it's very easy to do a "Save As..", and specify "Microsoft Work 97/2000/XP(.doc)" for documents, or "Microsoft Excel 97/2000/XP (.xls)" for spreadsheets. My kids use Open Office for homework all the time, and have never had any problems with their work being recognized by MS Word/Excel. I have also used it for many business documents, and never had any incompatibilities.
The other direction seems to work well too -- Open Office can open documents originally created in MS Office.
One caveat: interoperability with MS Office 2007 may present some problems, but it looks like the latest version of Open Office supports it. It hasn't been an issue for me yet, as almost all companies I work with aren't running Office 2007 yet.
Networking, printing, scanning, and wireless are all supported in Ubuntu Linux, and work quite well.
Download it, burn a CD, and give it a try. You can boot directly from the CD, and although it may run slightly slower, you can get a feel for how it works without actually installing it to the hard drive. Office Office is included on the Ubuntu CD.
It's not perfect, but neither is Windoze!