Microsoft finds itself in between a hard place and a particularly large chunk of stone with the impending launch of its Office 2010 Web Applications.

Make them too good, and Microsoft risks slaughtering one of its two biggest cash cows (Office and Windows being the products that keep Steve Ballmer in sharp suits). Water them down too much, however, and Microsoft runs the risk of powerful rivals such as Google or Adobe making vast improvements to their own online Apps and stealing Microsoft’s lunch.

It’s a problem Microsoft is clearly conscious off. It’s bravely decided to give consumers and small businesses free access to the Office Web Applications via Windows Live, even if they haven’t bought a copy of the client software.

But although Microsoft’s promising there will be no loss of formatting, content or fidelity when you open documents with the online apps, it’s certainly hedging its bets when it comes to the feature set. “We’re not looking to achieve feature parity across the PC and the browser,” Microsoft’s Office client product manager, Chris Adams, told me. And tellingly, Adams also added that “we’re not saying all Web Applications will have the same number of features,” meaning that volume licence customers who pay for Web Applications will almost certainly be granted a richer feature set than Joe Consumer.

When we saw an early preview of the Web Applications at the company’s Professional Developer Conference last autumn, they looked very polished indeed. It will be fascinating to see if they are still as impressive when the Technical Preview of the Office Web Applications rolls out next month.

P.S. When we asked Microsoft to answer a query on Office Web Applications, it sent us the following statement: “These Web Applications will offer customers Office format fidelity (ability to open, edit and save Office documents) high fidelity viewing and a consistent UI across the desktop and browser.  With Web Applications, we did the hard work up front to ensure that people’s documents aren’t ruined in the process, because that’s what customers have told us they want”.

Microsoft had to ask customers if they wanted their documents ruined?