So says Mary Jo Foley at ZDNet.com:
Microsoft’s next version of its small-business/home productivity suite, due imminently, will be free and ad-funded.
That seems unequivocal, huh? It seems they can still make enough money just from ads to continue development of the product. That's probably how Google can afford to give away it's online office suite, Google Docs & Spreadsheets.
Quick show of hands, how many of you actually knew Microsoft still make Works?