I have been using this app only for a day, but it beats Pages (Apple's Word Processor) hands down IMHO.
Check out the link to the demo video at the bottom of here. (Download iPad version, iPhone is still $25.99)
Get real work done, anywhere: no compromises. UX Write is a stunning, professional word processor designed from the ground up for your iPad and iPhone. With top-class support for Microsoft Word® .docx, HTML5, Dropbox, and PDF export - plus full functionality when working offline - you've got the freedom to work wherever you want, with the tools you need.
• Work seamlessly between UX Write and Microsoft Word with the best .docx support on the iPad
• Reflowable text (like e-books and web pages) that automatically adapts to your screen size & orientation
• View text comfortably at your preferred size, without changing document formatting
• Works perfectly offline - no internet connection required
• Bluetooth keyboard support, including all shortcuts
• Enhanced on-screen keyboard and “virtual trackpad” for convenient editing
• Enhanced auto-correct takes the headache out of typos
• Preview and restore old versions of documents stored on Dropbox!
• Styles for quick, consistent formatting across your documents
• Headings, lists, tables, and figures
• Outline view and editing for quickly navigating and restructuring large documents
• Automatic numbering, cross-references, table of contents, list of figures & tables
Demo video at www.uxwrite.com/demo
Still shows up as $25.99 for me