Mapping Center Answer:

You have accurately stated the key benefit of annotation over labels: the ability to individually edit text placement. In your case, where you have the combination of small area and dense features, annotation is really the only way to go. You can use Maplex rules with labels (available with an ArcInfo licence or as a separate extension) to get your text placement "most" of the way - this includes setting label draw levels independent of feature layers and feature/label priority ranking. However, you'll still need to create annotation for the final map finishing.

Annotation can have leader lines - these can be generated directly from conversion from labels, or as new features in an existing annotation feature class.

Performance issues are always a bit difficult to answer due to the differences in things like computer processing speed, density and number of features, network traffic and bandwidth, etc. However, you probably won't see a major difference in performance where your data is stored locally, and you're drawing a small extent. Where you will see an advantage with annotation is if you are mapping a large area with many thousands of text features, or store your data in SDE - annotations have a spatial index associated with them and may draw a bit faster.