In my humble opinion, "Web 2.0" is not about "let's transform all software into web-services". After all, this is true for so called "data-oriented" software only -- like text-editors, personal finance apps, email tools, maybe even graphical editors some day. But you will always need an operating system, a browser, finally, a network driver to get to the net (and who knows, may be a network switcher also).

Speaking of online services. I have a friend who also runs a mISV. I personally disagree with what he has done, but he has restricted the Internet access for his developers' computers. Still there's a couple of 'public' computers in every room which are connected to the Internet, and anybody can use it anytime to find some helpful answers, surf the Web or even relax and play some online games or read funny blogs. But no Internet at your workplace. It's like having a recreation room with a PlayStation in it... So, my friend claims that the devs productivity got high as never before. Without the Internet.

So, back to "Web 2.0". I guess "Web 2.0" is not about "lets move everything to the Web". It is about online presence. It's about - stop saying "visit www.thing.com for more" at the end of your commercial, and start saying "enter 'thing' in Google for more" instead! It's when creating your company account at Twitter, Squidoo and LinkedIn is as important, if not more important, than registering an Internet domain name.

BTW, found a nice online Privacy Policy Generator, you might find it useful: http://www.dmaresponsibility.org/PPG/.

UPDATE:
Speaking of "what is Web 2.0", here's a nice video: