I would be great to have an online annotation program where someone can post a draft of a paper and others can annotate it right there in the browser. I know there are commercial sites that do this but an open-source solution would be better.

Using the <canvas> tag seems the way to go,  if browsers support it well. There is a very nice mock up of windows paint program that demos what is possible. The source code is available too. A quick try in different browsers shows some dramatic differences though:

The windows were side-by-side and I tried to keep the speed of the scribbles the same in each, and had “show control points” switched on. This seems to indicate that Firefox 3 is sampling many more events than Google’s Chrome producing smoother results. Not sure if this can be fixed in some way for Chrome. Also there is a bug with placing the first point in a stroke. Tried Safari but it was unusably slow at sampling.