At this stage the NATO and allies knew that Russia is not happy with their plans on eastern expansion. I am trying to find a proof that they were aware of the annexation plans.
Russia's general feelings were always reasonably clear, but there's an enormous gulf between "want to annex and complain a lot about the current situation" (lots of states have such positions on disputed territories) and "actually sending in tanks tomorrow"...
That is very clear. Putin gain massive support in Russia with these moves, of course this is melting away after the embargo kicked in. The problem with that is two fold. The embargo directly hurts EU's economy (look at the Mistral class ship deal with France) and the lower oil price triggered a massive buying up operation in China making them even stronger than before. Basically USA's (and more broadly the Western world's) influence hurting their allies and enabling the other parties (China) to gain even more power. This sort of play is not good for us in the long run.