Although I have been working with ArcGIS 10 Pre-Release, the last time I dealt directly with this issue was ArcGIS 9.3.1 so what I am about to say may not apply to the new release.
For the datasets I have worked with, the extent of the spatial indexes on GEOMETRY and GEOGRAPHY types had a large impact on performance in ArcMap, both drawing and querying the data. For whatever reason, ArcCatalog would usually define large spatial index extents (on the order of projection extents) for data loaded into SDE using the GEOMETRY type. If my memory serves me, usually just deleting and rebuilding the spatial index in ArcCatalog would define better spatial index extents and result in better performing spatial indexes. I do remember, though, rebuilding a couple spatial indexes in SQL Server Management Studio.
For the data our organizaiton was working with, we could never get the GEOMETRY type to perform as well as SDEBINARY, but we could get the performance differences down to acceptable levels. For example, redraw/refresh times in ArcMap for a couple of dense datasets went from 15 to 25 seconds down to 2 to 5 seconds. Not great but acceptable since we needed the data stored with GEOMETRY type.
Since SQL Server 2008 was the first version to support native spatial types, I am mostly chalking the performance differences up to the DBMS and not ArcSDE (not to say there isn't room for improvement with ArcSDE). For example, SQL Server 2008 SP1 addressed a fairly substantial issue with the SQL Server Query Optimizer where poor costing information was having the optimizer ignore spatial indexes in favor of full table scans. The workaround at the time, before the service pack, was to force the use of the index through a HINT, but ESRI had valid reasons for not wanting to re-write code to always force the index. As spatial support matures in SQL Server, I expect the native types to become more viable.
I have generally been pleased with the performance of Query Layers in ArcGIS 10, so I may re-visit those datasets to check whether the experiences we had with 9.3.1 are still valid with 10.