Ubuntu is a distribution of Linux, an alternative operating system. By default, it comes with OpenOffice which does everything Word and Excel do.
I've got a fully legal Windows XP license for it too, it's just that I was tinkering with a touch screen a couple of months ago and Windows didn't get on with it very well. But if Windows is familiar there's no reason you couldn't use that instead, the laptop originally came with it. Either will come as a fresh, clean installation, and even if you choose Linux I'll include the Windows license if you want to install it at a later date.
As for Microsoft Office, there's options, we'd have to negotiate. Microsoft Office (Word, Excel, etc) costs from £50 to more than £500, depending on your circumstances. I daresay we could sort out something cheaper though.