Anita Campbell has a piece on Software as a Service that discusses this popular trend. However, I feel that more is being attributed to the concept than is justified.
Software as a service does not imply a browser based application and I am quite confident that Microsoft have no desire to move to browser based applications. SAS can exist just as effectively as client based applications that can auto update. Google Earth is not browser based, Skype is not browser based, ITunes is not, MSN Messenger, etc, etc.
SAS is primarily pricing model for applications that are internet connected. The apps need to be internet connected so that the vendor can pull the plug when the user stops paying. The web browser just happens to be the mechanism with the least friction to deliver applications that is available today.