Over at Easily Distracted ("More on Email") Timothy Burke notes that papers sent by email can tend to get lost from the rest of the pack, especially if you're shuffling them (or whatever the term would be for something that doesn't exist in paper form) between computers. Some of his commenters mention commenting on papers in Word, using WebCT or Blackboard or Turnitin to download them, with some preferring to mark up the hard copies instead. I often put them on a central server or on a flash memory stick.
It's true that having an electronic copy can make checking for plagiarism easier. Electronic versions also have a few other benefits.
1. If students ask you to write recommendation letters for them and you've commented on the electronic version, the paper is right there on your computer. Since some grad schools, law schools, and places of business ask about (or want to know about) communications skills, your letter for the student can speak more specifically to his or her strengths.
2. When student awards time rolls around, you'll have a copy of the paper to submit on behalf of the student, if that's how the process operates in your department.
3. For those of us who are more apt to lose a paper copy than an electronic one, it's a nice backup system.
One commenter mentions getting .pdf files and marking them that way, presumably in Adobe. That's only for the gold-plated-with-a-ribbon-on-it full version of Adobe, though. Although it'd be nice if that version were available to everyone, those who
have to make do with Adobe's free reader don't have that option.