Dr Anne McBride (
http://www.southampton.ac.uk/psychology/about/staff/amcb.page#background ) researched and published a paper on this. She demonstrated that rabbits do experience high stress levels, both psychologically and physically, whilst in a state of tonic immobility (the scientific name for 'trancing'). It is a 'play dead' fear response. There is no doubt about this fact, their bodies respond in the same way to tonic immobility as they do to highly stressful situations.
The ethics of it is a different matter - as with all ethics it comes down to morals. Some say it should never be done, others say it has its uses.
Personally, I think that it is very useful, but should only be used when necessary, and when doing so is the lesser of two evils. I don't think it should be used for everyday grooming or for fun, but I was happy for my vet to trance Barney in order to take an xray, as it meant he didn't have to have general anaesthetic. He has a respiratory illness and gut illeus, both of which make anaesthetic more risky.