By Jon Brodkin

With Microsoft still holding off on releasing a full version of Office for the iPad, plenty of competitors have emerged to fill the gap. Among the contenders, some offer entirely new office suites designed to be (mostly) compatible with Office documents. Others provide actual copies of Microsoft Office in a virtual desktop-like setting, eliminating any compatibility problems but requiring an Internet connection to function.

OnLive Desktop, the service that stirred up controversy by providing Windows and Office on the iPad and Android tablets without being properly licensed by Microsoft, has now gone legitimate with new code on the backend. But there are already reports that the service’s usability is suffering as a result.

For those who just want Office on their iPad rather than an entire PC desktop, there’s another option called CloudOn. It’s not perfect, but for the moment it’s free, and is getting a sizable update today.

Currently available only for iPads (other tablets, and phones will be added in the future), CloudOn connects users to a cloud-hosted copy of Microsoft Word, Excel, and PowerPoint. In its first version, the application uses Dropbox to sync documents. There is no local storage—you need an account with a separate storage service to store and sync files across devices. Support for Dropbox competitor Box is being added in the second version being released today, as well as access to Adobe Reader.

[partner id=”arstechnica”]Why no local storage? CloudOn CEO Milind Gadekar says this helps ease corporate concerns about document leakage. However, it does create some challenges. For example, while using CloudOn—both the original version of the app and an early copy of version 2.0 that I was able to test prior to it hitting the App Store—I noticed that documents become blurry when scrolled up and down. But the documents look fine once you stop scrolling, so in practice it doesn’t really limit usability.

Gadekar explained in an interview that because CloudOn uses no local storage or caching, each time you scroll the new part of the document is being streamed from Dropbox or Box.

“When you scroll, we could provide perfect graphics, but then the responsiveness of the scroll would be a little laggy,” he said. “To provide instant responsiveness on scroll, we’ve had to compromise a little bit on image quality.” Overall performance should be a little bit better in version 2.0, though. The app also has some nice features, such as the ability to e-mail documents from within the editing interface, or to open documents in CloudOn from the iPad mail client.

Unlike the early versions of OnLive Desktop, CloudOn is perfectly legitimate, with proper licenses from Microsoft. Perhaps the best part right now: it’s free for all users. At some point, CloudOn will change to a model with a free tier and a paid upgrade. The upgraded version will expose more functionality, such as more macros, commenting, and annotations. The free tier may also have limits on the number of documents or edits allowed, but the exact business model hasn’t been worked out yet, Gadekar said.

Many options for Office compatibility on the iPad

While iPads are generally used for media consumption, rather than content creation, there’s enough interest in using the iPad for productivity that many companies have built office suites for the device. Nearly all of them (even Apple’s iWork) offer some form of compatibility with Microsoft Office documents because of its ubiquity in the personal and business productivity markets.

But each approach has its pros and cons. I rarely, if ever, create or edit documents on an iPad, but sometimes view them. My favorite type of approach combines offline with online capabilities, allowing both local storage of documents and a connection to services like Dropbox and Google Docs to make them easily available to other devices. You can get this functionality from apps such as Quickoffice ($14.99 for the “pro” version, with a free version with viewing, but no editing capabilities), and Documents To Go (with versions for $9.99 or $16.99).

These types of apps are generally good for light edits, but lack much of the advanced functionality in Microsoft Office. And while they promise compatibility with Microsoft Office, complicated documents may not be displayed perfectly. For most users, they’re probably fine. But power users may want nothing less than the full version of Microsoft Office, even on their iPads, and that’s where companies like OnLive and CloudOn come in. The cloud-based options will only work with an Internet connection, but you’re getting an actual copy of Office, not an imitation.

Between CloudOn and OnLive Desktop, the former seemed a bit more intuitive to me. For example, CloudOn’s Microsoft Word lets you scroll up and down by moving your finger anywhere on the screen. OnLive Desktop’s touch-to-scroll works only if you swipe with two fingers—not a big deal, but I didn’t figure it out right away. Both apps use a long press to bring up the right-click options, but in CloudOn the menu pops up a bit more quickly. Selecting text with one finger works pretty well on both.

There’s often a slight delay in logging into OnLive. But OnLive doesn’t have the issue of document blurriness I mentioned earlier, and it provides more than just Office. It’s a full Windows desktop, and the upgraded, $5-per-month version includes Web browsing with Adobe Flash. Dropbox integration with OnLive Desktop, however, is only available in the paid version.

Both CloudOn and OnLive work only in landscape mode—there’s no portrait viewing of documents, which is available in Quickoffice and other similar apps. But CloudOn and OnLive are free to download, so there’s no harm in taking them for a spin.

Have you tried any of these applications out? What do you think is most important for access to Office apps from mobile devices?