You're right twice: AppleWorks includes a competent simple word processing module, and it's a pretty outdated app. It's usable, though. I use it on my old System 8.6 pre-G3 PowerBook, when I need it. I always intended to put it on my G4 running OS X, but never got around to it.
Like Giaguara, I put OpenOffice on my OS X machine. It's free, reasonably compatible with MS Office, and it runs across OS X, Windows, and Linux, although unfortunately the Mac port is way behind the others. If I were Apple, I'd have some good engineers help out with that situation; that they have not lends some credence to the "iWrite: Apple is going to put out an office suite or at least way-upgrade AppleWorks" rumor.
I use OpenOffice for spreadsheets, but I use TextEdit for word processing (my needs are simple). I also bought and use ThinkFree Office (
www.thinkfree.com), which is pretty cool and fairly MS Office-compatible, but is a Java app and can be sluggish.
I'm an OpenOffice fan, but unless you like tweaking and don't mind waiting 45 seconds for OpenOffice to load when you click the icon, AppleWorks is probably worth your $40 to tide you over till MS Office 2004. I showed my girlfriend OpenOffice on my Mac, and offered to set it up on hers, but she was put off by the slow load time and the "clunky" X11 look, so she declined and bought her own copy of ThinkFree Office.
Cheers,
Crikey