Yes, not only highligted, but cited scriptures written in the margins and prepared comments written out. That is how I was taught to do it. And yes, on the rare times I didn't have time to prepare, I quickly made it look like I had. Such a shame-based group, isn't it.
I did not, however like to mark up my KMs since it made them look too messy to me. Wouldn't you know, a sister saw my unmarked KM and said, "What, you don't study the KM?" Even though it was none of her business, I explained that yes I had studied it, just didn't like to mark it up (this was before the CD-Rom so as far as I knew would always be my only copy). Her response? A glare that indicated disapproval/disbelief that I had indeed prepared.