In this case, the frames might become a liability when students attempt to include external links in their annotations. The link then appears within the frameset as a small window on the right hand side. Another potential problem could arise if you wanted to place the annotator within a frameset of your own course page. A frameset within a frameset becomes increasingly difficult to navigate. If you have a text that requires special spacing on the page, you might not be able to represent it accurately.
Special characters can also be a problem.
Again, that will alter the way the text looks. However, the benefits of annotation and discussion should usually outweigh the cost to appearances. Your students may submit annotations you find misleading or innapropriate. It is up to you to deal with the way you handle that situation. Because they may type their own names into the annotator, they may also choose to type fake names or the names of other students.