I love my web apps. I use GMail religiously (on a computer and on the mobile). John and I use a suite of web apps to run and manage 360Conferences. We use 37 signals apps (Basecamp, Highrise), Buzzword (for docs), Google Docs (for spreadsheets) and Google Calendar (for scheduling). While AIR is an exciting technology, it is primarily a developer technology. By that, I mean the average web user will gain no benefit from AIR unless the web app developers choose to take advantage of AIR. It is for that reason that I find Prism so exciting.
Prism seems to be aimed specifically at end users, not just developers. For example, take Workday. Prism provides us immediate benefit. It allows us to break free from the browser. Workday is a web app and not a web site. We have no use for a back button, bookmarks, etc. Our application provides all those navigation methods much more efficiently (and dare I say, elegantly) internally. Prism allows us to break free from the broswer mold and put some shortcuts onto the desktop, quick launch bar and start menu. The best part is we (the workday developers) did not have to do anything to get this functionality. Prism allows our users to do create that functionality quickly and painlessly.
Another thing that’s great about Prism is that if a web app uses a plug-in and you have it installed for FireFox, then it’ll work. With AIR, we’re locked down to Flash Player and PDF only. While that is great for building new apps that integrate elements of those 2 technologies with the desktop, it’s a bummer for apps out there that utilize other plug-ins, like QuickTime.
Don’t get me wrong. I’m excited about AIR too. It’s just that, like I said earlier, Prism provides immediate benefits with no developer tweaking. Adobe should emulate that capability. It shouldn’t be hard.
Tom's Blog 
How are we locked into Flash player and PDF only on AIR, you can develop an entire AIR application using nothing more than html and javascript. Meaning that you can take existing web applications/sites and simply wrap them in an AIR application.
Not to mention that prism has plenty of issues also. I use it daily for google reader but still run into bugs all the time. And although cool it is nothing more than a standalone browser without some functionality. And you mention Buzzword (which I love) doesn’t work completely correct in Prism to the extent that I actually uninstalled Buzzword as a prism application.
So I really think that Prism is nice but falls well short of what is needed to bring a seamless experience between the web and desktop. And AIR is really closer, not close enough yet, but closer to what is needed.
Sorry, I meant as far as plugins go, i.e. QT isn’t supported. Obviously you can use straight HTML. You nailed it though by saying I (the developer) have to wrap it into an AIR app. My point was that with Prism, the user wraps it not the developer.
I’m not saying Prism is rock solid or beats AIR. I’m merely stating that two nice feature of Prism is support for any browser plugin and the user ability to transform any site into a destop app. Those are nice and not supported by AIR.