As you can read at OnLamp, Linux continues to get better every day. It is also keeping up with the new tchnology being introduced into the market.
As far as apps go, Star Office is now available from Sun, and is far better the MS Office in every category.
Linux is also picking up Major Partners in the market including IBM, Novell, Sun, Oracle, and growing daily. With the US market sliding, cheaper and better alternatives with no licensing costs are being implemented, not just talked about anymore. Security is another reason many companies are choosing Linux as well.
Couple all of this with LAMP, Apache's control over the Internet, and the masses disgust with Microsoft products that are full of patches and holes, and you have a OS revolution in progress.
The question is no longer will Linux replace Windows, but when, and at the current pace the answer could well be in 5 years or less.