We bought iLife with our new iMac, and it's done everything Office has done on our old XP machine. As far as I know, it saves documents and works back and forth between Office
Office 2008, Student Edition. There are many features in Word that really help with writing college papers, especially the citation and sources manager which is completely absent in iWork.
iLife is software to deal with movies, images, websites, etc.. i believe you are referring to iwork (pages, keynote, numbers)