I agree that the Sony Reader is ahead in terms of PDF annotation. I have a Sony PRS-900 (Daily Edition) and just got a Kindle 3 3G for my girlfriend. Neither device will incorporate annotations into the PDF file, which is understandable since the file would have to be re-written, but I really wished the desktop software which come with the devices (Reader Library and Kindle Desktop) would do that as post-processing.
Sony Reader annotations are stored as XML files and I hope some enthusiastic programmer or 3rd party developer (or even Sony themselves maybe?) will come up with a tool to merge these annotations into the actual PDF file. The Kindle annotation file seems a bit more difficult to hack since it contains both binary and ASCII data.
Anyway just wanted to make a call to all hackers & enthusiasts out there who are familiar with PDF rendering, please give it a go!!
I believe that thousands of users would be more than happy to make a donation when such a tool is available