My team is moving to Spring 3.0 and there are some people who want to start moving everything into Annotations. I just get a really bad feeling in my gut (code smell?) when
Actually I think that the bad feeling in your gut against has more to do with Annotations like this mixing configuration with code.
Personally I feel the same way as you do, I would prefer to leave configuration (such as transaction definitions, path elements, URLs that a controller should be mapped to, etc.) outside of the code base itself and in external Spring XML context files.
I think though that the correct approach here comes down to opinion and which method you prefer - I would predict that half the community would agree with the annotations approach and the other half would agree with the external configuration approach.