Microsoft do still offer a free alternative in the form of Office Web Apps. These are versions of Word, Excel and PowerPoint that operate within a browser. To use them you need a Microsoft account (almost obligatory these days) and Skydrive; having logged in you are then presented with what appear to be very cut-down versions of the software - Office Extra-Lite if you will. However, provided your computer is modern and you have a reasonable internet connection they work well enough at a pinch, but not so much that you wouldn't want something more substantial. The obvious solution is to buy a proper copy of Office. This comes in a number of variants, but for just over £100 you can buy Office 2010 Home and Student Edition. This consists of Word, Excel and PowerPoint, and may be installed on up to three computers in one household. The proviso is that it may not be used for commercial purposes; if you are in a business then you are supposed to buy a business edition. This includes additional programs (most notably Outlook) but is considerably more expensive. Office 2010 is due to be replaced by Office 2013 in the near future; if you buy it at the time of writing then you will be entitled to a free upgrade.
However, there are plenty of free alternatives available, programs that are behave the same as (and in some cases look similiar to) Microsoft Office. The best known is LibreOffice; an alternative is the closely-related OpenOffice. If you are accustomed to older versions of Microsoft Office (e.g. Office 2003) and do not like the Ribbon interface introduced with Office 2007, you may even prefer them as they look like old versions. There is no catch and nothing dodgy - these programs really are totally free.