So then where is the harm in porting Office to iOS with the same TOS restrictions?
Businesses won't buy it. If they're going to make a Home edition they're already going most of the way towards full Office functionality, so they may as well make something that will actually sell.
Ballmer seemed pretty aggro on that stage though. I wouldn't be surprised if they tried to use muscle to get in the tablet game. The Business division certainly wouldn't choose exclusivity to RT if they were left to themselves.