It is expensive because it's Microsoft's cash cow. I know it was true in the past, and still may be, that M$ made more from Office than any other of their software products. It's also the de facto standard in business today, which means that companies will continue to buy it, just to maintain compatibility with documents from previous versions (although they haven't been compatible 100% of the time).
It's also expensive because it's a darn good product. Say what you want about Microsoft and its business practices, but Office is an excellent product. Sure, it's bloated and has many more features than most people will ever dream using, but bottom line, it's very good at what it does. I remember Lotus 123 selling for $500+ just for the spreadsheet, so when you look at it, the price isn't all that bad. Especially if you buy one of the new Teacher/Student versions for $129.
And to answer your other question: yes, there is a speech recognition program built into it. It's not too bad. Not as good as some other products on the market, but it's basically a freebie and is fairly accurate with a decent amount of voice training.