For broad edits I prefer to work from hard copies and give my critique via e-mail. (For shorter jobs—such as first impressions—I will also read Word-compatible documents, .pdf and .epub files.)
For line edits and proofreading I generally require Word-compatible documents, and respond using the tracked changes function. (I will work from read-only sources and provide edits by page/line description, but this costs extra.)
For second proofreading (ie. immediately prior to publication) I will need to see the work in the medium for which it is destined: publisher’s proof or e-book.