Paul Graham thinks Microsoft and desktop apps are dead:
"Gmail also showed how much you could do with web-based software, if you took advantage of what later came to be called 'Ajax.' And that was the second cause of Microsoft's death: everyone can see the desktop is over. It now seems inevitable that applications will live on the web -- not just email, but everything, right up to Photoshop. Even Microsoft sees that now."
He's definitely off the mark with that statement. Luckily Martin Pilkington has a counter-rant:
"There seems to be a slightly delusional section of web developers who seem to believe that in a few years time all of our applications and data will be online, while our computers run little more than a browser. Of course this is complete bull."
As someone who builds both desktop software and web apps, I'm very much interested in what happens in the middle. Next generation Mac software in particular can mix local HTML interfaces, web services, and syncing with a traditional rich UI to build something that is the best of both offline and online worlds.
I had an interesting conversation with Willie Abrams the other day about why the Flickr UI is better than iPhoto, even if you take away all the social parts of Flickr. The reason is that Flickr introduces extra layouts specific to certain types of activities, such as the excellent calendar view for archives. Another example of a web app UI innovation is the Backpack reminder UI that John Gruber recently wrote about.
Web apps are usually able to iterate on features and interfaces much quicker than desktop software, but that doesn't make web apps inherently better. Put another way, iCal sucks because it hasn't been seriously updated in 5 years.
I have other thoughts on this topic, but already I've extended this blog post 3 paragraphs more than intended.