A screencast that takes you through creating an online text assignment in Moodle.
Key benefits: the document is stored in Moodle (no losing paper or Word files that won't open) and both you and the student can access it at anytime. The tutor can add feedback to the assignment at any time also.
Another tool that might be appropriate would be a Wordpress blog, using the 'commentpress' theme developed by Future of the Book. This is set up to allow comments by each paragraph. Demo version coming soon.