How to do document review in LaTeX?

The problem with sending someone LaTeX source is that unless they're a LaTeX user themselves they are unlikely to have the necessary software installed. I would recommend sending a PDF, which anyone can typically read on any platform.

It is possible to make annotations to PDF documents. I believe most PDF readers support this out of the box. I'm certain, for example, that Preview on Mac OS X does.

When you get back the PDF with annotations, you can go back and edit the LaTeX sources accordingly. What I think you lose vs. Word is the ability to easily highlight the changes between multiple document revisions. This is not a big deal if you're doing one round with one reviewer, but it doesn't scale so well if this is a major editing project with many rounds of feedback and revisions.

PDFs are easier to read, as you don't have to mentally parse all the syntactic overhead. Check which PDF readers support annotations on http://en.wikipedia.org/wiki/Comparison_of_notetaking_software

Then, as you make all the changes, use standard VCS tools to track all the different versions of your .tex files. A git repo and a good diff viewer is all you need. This workflow scales much better than sending MS Word files all around your office.