I am about to start a significant research and writing activity with a co-worker. We will have to organize a bunch of documents, take and share notes, do some searching, etc. The tool should allow us to group and organize notes associated with each document, and perhaps generate some overviews of the collection.

I am looking for recommendations, including pros and cons. We would consider spending a bit of money on this, but obviously free is better. On the other hand, a well-designed, usable interface is worth some investment. Also, I would prefer simplicity to functionality.