Version:           3.1.1 (using KDE 3.1.5)
Installed from:     (testing/unstable)
Compiler:          gcc version 3.3.3 20031229 (prerelease) (Debian)
OS:          Linux (i686) release 2.4.22-xfs

1) Specification of annually recurring events: 
  Click on "recur in the month of".
  Then one has to specify the month which nonsensically is January        by default instead of the month of the current entry.
  After hitting OK, this results in the correct recurrence also in leap  years  (e.g. always on March 2)
BUT:
2) Returning to the same menu later, I always find the button 
   "recur on this year" checked, which would mean WRONG 
   entries on leap years, though the entries remain correct.

Completely confusing !
(The wordings are also confusing, I agree with what is said below
 by Reinhold Kainhofer)

As described in the comments to bug 46711
(Comment #6 From Reinhold Kainhofer 2003-09-08 16:44):
 -) "Recur in the month of ..." means the recurrence is always on the same date 
 (e.g. Sept 8, be it the 251-th or the 252-th day of the year) 
 
 -) "Recur on this day" means the event recurs on the same day of the year 
 (e.g. on the 251-th day of the year, which is usually Sept 8, but in leap 
 years it's Sept 7). This is the button that is checked by default (which it 
 shouldn't be imo). 

Thanks.