Colin,
Hibernate 3 is supported in XDoclet 1.2.3, we currently ship version 1.2.2. We targetted upgrading these libs to 1.2.3 before we ship 4 but there are other items that might get this pushed to a maintence release right after.
However there is a user in the forums that manually updated all his XDoclet libs and said it worked fine. (The XDoclet plugin dir under the MyEclipse install contains all the XDoclet JARs, you can move the old ones out and move new 1.2.3 ones in, then load MyEclipse and go to Window > Prefs > MyEclipse >X Doclet and be sure to click the refresh button there, then the refresh button 1 morwe level down)