Cut back on the OS? in what way do you mean cut back on the OS?
and move future office into the cloud?.. Maybe in 5 or 10 years you'll only see Office as an online app... (MAYBE), but for now they're talking about having both.. since GoogleApps etc are starting to become more viable alternatives to Office and MS would be stupid not to come up with a product that can bolster their Office product line in that area.
As for the flashy aspects of Windows 7, I think in some ways its necessary, they've put everyone through a part of the pain of an architectural change to the core of the OS (which was sorely needed after XP) and now they can spend more time make the UI alot more intuitive to the average user.