A modern browser is more then capable of handling just about any office application going and is as suited to launching java/javascript/xml/flash applications as any regular OS is with it's own native apps.
The concept is an interesting one, it's also not the first time this has been tried out - BeOS had BeIA, which had Opera doing the work of a desktop, I believe also there are other linux distros out there that use Firefox in a similar fashion. Interestingly, Palm are also going this route with their webOS - as seen on the Pre.
The concept is viable if you stop thinking of the browser as a browser and instead think of it as a window manager (which is what it is, in this case).
In fact, from a linux perspective, there isn't a whole lot of difference between WebOS/googleOS and a regular distro beyond what's performing the role of the WM. If anything it removes an extra layer of complexity from it all without really loosing anything in terms of capability - javascript pointing to a regular application for instance.
Nothing new to the Amiga family:
http://www.chiptune.com;-)
