I've written a similar post before, put I would like to talk about some of the features that I would like to see in an ideal paper writing application.
Content and formatting should be separated from each other. A manuscript should require as little formatting as possible, and that formatting (including the format of references) should be defined in a Journal style that is automatically applied to the manuscript. Publicon by Wolfram Research tried to achieve this, but unfortunately appears to be a dead product.
A reference database should be integrated into the paper writing application. Ideally this would be a web-based database such as Connotea, CiteULike. Both Refworks and EndNote Web already offer some level of integration.
Storing all versions of a manuscript is very important for obvious reasons: backup, keeping track of revisions and coordinating the input from more than one author. Version control is standard practice in software development, using tools like Subversion or the newer Git.
Integration with Online Submission Systems
Submitting a manuscript to an online manucript submission system such as EditorialManager or Topaz is too complicated. This process could and should be automated.
My Paper Writing Dream Machine will in all likelyhood turn out to be a web-based application, using on one of the more advanced platforms Google Gears, Microsoft Silverlight or Adobe Flex. And the data will be in XML using a standard DTD. Some of the pieces of the puzzle already exist, but nobody has yet put them together in a way that it creates a compelling alternative to the currently used systems.