Yes, the .msd (an optimized map document format) does not draw elements (or anything else, including layers) the same way an .mxd does. It's an optimized format that stores objects (maps, layers, symbols) completely differently from the .mxd. The optimized anno layer is silently skipping your elements when it draws in the Preview window. It loads fine, but since it's not an Esri element, we can't convert it to the new format. Nor do we expose some means by which you could do that conversion yourself. And there isn't any way to publish a non-optimized map service to a 10.1 server; we only support the optimized format.