On mobile devices, the Office Web Apps are supposed to be view only. You are not supposed to be able to create new or edit existing documents. Of course that declaration must have sounded like a challenge to those little tinkers at CNET. In this article, they were almost able to fully run the Office Web Apps on their iPad.
The Windows Live site detects what platform is running Office Web Apps, and if it happens to be a mobile device, the Edit in Browser options are disabled. However, after exploring lots of different pages on the site, it was possible for the intrepid CNET researchers to switch to the PC version of the application.
In summary, it appears to be possible to do the following on an iPad: