I teach calculus as a grad student for a class of about 75 students. I don't force them to turn in PDFs, but rather scan their homeworks using a top-feed scanner in our dept office. As long as they don't turn in crumpled up or torn papers it's actually a pretty fast process, about 15 minutes (and if they turn in unscannable papers I dock points off their grade). But reality is, turning back their papers every class, rather than just sending them back electronically on Bboard, would waste roughly the same amount of time. Also, it allows them to get their papers back the same night they're turned in, so they can ask questions at the next class, and prevents anyone from cheating by adding work to the paper after it's handed in.

The key with annotation is (obviously) to write neatly and small. I did have to invest in a longer stylus to write legibly, which irked me, but you get used to it.

As far as applications I'd like to see, I could definitely use 3-d plotting apps (recently found good 2-d apps, but 3-d is needed) and for them to fix the myriad problems with the Projector app so I can plot on one screen and do math on the other. Unfortunately, the way our projector in my classroom is set up, as soon as you activate it you lose nearly all the board space because the screen comes down automatically, so I've resorted to switching between Maple and LyX on my laptop to do plots vs. typing in math, which is not really an acceptable solution.