Background
Clippy the paperclip was introduced in Office 97. He is the default character of the Office Assistant, designed to make office easier to use. The user would either summon Clippy, or he would pop up whenever he saw the user doing something inefficiently, and suggest a better way of doing things, or a keyboard shortcut. Clippy could be asked question in plain English, and would respond with his best guess as to what the user was looking for. None of this is new: Clippy is simply a new interface for two features from Office 95, the TipWizard, and the Answer Wizard.
The TipWizard is a toolbar which appears next to all the other toolbars, with the tip written on it. The only other widgets on the toolbar are a pair of arrows to show previous tips, and a button so show more information on a tip. Its first tip explains what the TipWizard is, and how to switch it off.
The Answer Wizard is an extra tab in the 'Help Topics' dialogue. The user can quickly move between the different tabs, which offer searching by contents, index, keyword and the Answer Wizard's natural language searching.
Problems
There are several problems with the Office Assistant as a user interface, especially in comparison to the interfaces it replaces. It's too small, too intrusive, and too slow.
Too small - While the Answer Wizard is a sensible size (the size of the help dialogue box), the Office assistant displays only interacts through a small 'speech bubble' coming out of the character. The speech bubble is a much smaller area to display results in, roughly an eighth of the size of the Answer Wizard. If more than four or so results match, the user must scroll the list of results in the speech bubble. The Answer Wizard almost always fits every match on the screen without scrolling.
Too intrusive - The Office Assistant adds unnecessary visual clutter to distract the user. When summoned, it expands out of the help menu, and then the character performs a 'wake up' animation. The same process is repeated in reverse when the assistant is closed. The office assistant does this even when it's popping up to volunteer a new tip. If the Office Assistant is left open the animations can be avoided, but every so often it will animate to let you know it's still 'alive'. Clippy scratches himself with one of his ends, and blinks his eyes. The TipWizard, by comparison, opens and closes without any fanfare, and doesn't animate at all until it comes up with another tip.
Too slow - The golden rule of user interface design is that you don't keep the user waiting. It takes a delay of less than half a second to make an application feel 'slow'. Any longer than half a second, and the application may feel non-interactive, and the user will become frustrated. If it is known that a task will take longer than a fraction of a second, a progress indicator should be displayed, to let the user know what is going on. Depending on the animation, the Office Assistant may take a whole second to appear or disappear. There is no way to disable this behaviour, and the user cannot do any useful work until the animations are over (Office is usable while the Office Assistant is opening, but the Assistant is distracting, and users usually summon it because they need help, and can't carry on with their work until they get it).
Switching off the office assistant
It's possible to reduce the annoyance of the Office Assistant - there exists a non-animated 'Office Logo' character that eliminates the animation delays (but does nothing for the delay caused by the Office Assistant 'growing' out of the toolbar). The Office Assistant can be set not to pop up and volunteer advice. The problem is not the advice, however, as it can often be helpful and timesaving, but the way in which it is presented.
The most annoying thing about the paper clip is that there is no way to revert to the older, more usable interfaces. If you switch off, or don't install the office assistant, you don't get the functionality of the TipWizard or Answer Wizard at all; there's no way to get a sensible interface without sticking with the hopelessly antiquated office 95. (Office 95 has a different file format to every later office, making it incompatible with the rest of the world). Office 2000 claimed to ship without an Office Assistant, but it really just shipped with less annoying default settings for the Office Assistant - the Answer Wizard and TipWizard are still nowhere to be seen.
Technical issues aside, the reason the paperclip offends me personally is that Microsoft Office is the most powerful, customisable office suite in the world. It costs more than some budget PCs. Using it to type the 'occasional letter' is like using an oil tanker to do the shopping. In short, Office is wasted on the AOL, family PC user. And yet that's exactly who Microsoft targets office at nowadays. Office 95 advertised features like better, more reliable OLE, the binder1, better VBA, etc. Office 97 advertises Ease of use, price, and Clippy. Office 97 introduced underpowered toy applications (publisher, small business financial manager), at the expense of PowerPoint and access. At the same time, however, it kept macro support switched on by default, leaving the door open for floods of stupid macro viruses, which the new target audience had no idea how to deal with. Clippy is the figurehead for the dumbing down of office into some horrible hybrid - still horrendously powerful and complex, but with a veneer of simplicity that lulls new users into a false sense of security, while annoying the hell out of old ones.
How many people do you know who can't 'work' word? Who don't understand why it keeps trying to make lists, and mess with the indenting. Who don't know what styles do, who don't understand why it can't 'show codes'? In short, people who try to bend office to their will, rather than learning to use it, and then become frustrated when it doesn't 'work'. Aiming office at the 'pick up and use' market was a bad idea, and Clippy isn't doing anything to help.
1 - The binder allows for easy management of long publications (long meaning hundreds of pages) by tying many documents into one, sharing styles between them, and printing them all off with the correct page numbers