1. On our training slide we say the OWC is not likely to be continued. Is this still the case? Or can people safely create OWC reports and not worry about the immediate future.
I wouldn't worry about the immediate future. It's still the best (& cheapest) for many embedded applications--and they use it in BI Dev Studio. You probably do want to figure out a way to implement Create Subcube to filter (to avoid strange behavior around Where clause), but that's not hard--just grab the connection from the OWC and execute a Create Subcube command. That's what the filter at the top of the OWC in BIDS does to con the OWC into working properly.
2. Why is OWC not a thin client. Do people need to have Excel on their machine to use it?
It's not thin because it needs a) an activeX control and b) PTS. That's about 4-5 MB of download. Users don't need Excel. If they don't have a 2003 licence, they can drill and slice, but not create new ones.