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Summary
You will get a lot more functionality out of Office 365 if you are running the latest version of Office (2010) and do the required upgrades.
Under the Home tab, you should set up and configure your Office desktop apps to work with the online version, but bear in mind that if you decide to stop using Office 365 (and paying for licenses), you may need to revert to other older versions, like Outlook—and this can sometimes cause problems.
The reality is that so far the system is not entirely cloud-based; it still profits significantly from interfaces with Office 2010—and, to some extent, 2007—on the desktop, and accessing the Web Apps requires access to the Team Site.
(There are still some older users who have access to the original Skydrive Web Apps, which do not require a SharePoint site to access and to which you can upload files from most versions of Office.)
It’s always a good idea to limit your access to newer versions of Office software until you know you will keep them and update them, and Office 365 is no exception.
However, Office 365 is a user-friendly combination of team collaboration, web apps, and communications capabilities for the small- to medium-sized business. It also provides a very cool way to manage email, contacts, and calendars both online and on the desktop, and share documents with other team members.