Are there any side effects of returning from inside a using() statement?

No, I think it's clearer this way. Don't worry, Dispose will still be called "on the way out" - and only after the return value is fully evaluated. If an exception is thrown at any point (including evaluating the return value) Dispose will still be called too.

While you certainly could take the longer route, it's two extra lines that just add cruft and extra context to keep track of (mentally). In fact, you don't really need the extra local variable - although it can be handy in terms of debugging. You could just have:

public static Transaction GetMostRecentTransaction(int singleId)
{
    using (var db = new DataClasses1DataContext())
    {
        return (from t in db.Transactions
                orderby t.WhenCreated descending
                where t.Id == singleId
                select t).SingleOrDefault();
    }
}

Indeed, I might even be tempted to use dot notation, and put the Where condition within the SingleOrDefault:

public static Transaction GetMostRecentTransaction(int singleId)
{
    using (var db = new DataClasses1DataContext())
    {
        return db.Transactions.OrderByDescending(t => t.WhenCreated)
                              .SingleOrDefault(t => t.Id == singleId);
    }
}

Have a look at this

Understanding the 'using' statement in C#

The CLR converts your code into MSIL. And the using statement gets translated into a try and finally block. This is how the using statement is represented in IL. A using statement is translated into three parts: acquisition, usage, and disposal. The resource is first acquired, then the usage is enclosed in a try statement with a finally clause. The object then gets disposed in the finally clause.

There are no side effects of returning from inside a using() statement.

Whether it makes the most readable code is another discussion.

I think, it's all the same. There's nothing bad in the code. The .NET framework wouldn't care where the object is created. The thing that matters is whether it is referenced or not.

Yes, there can be a side effect. For example, if you use the same technique in ASP.NET MVC Action method, you will get the following error: "The ObjectContext instance has been disposed and can no longer be used for operations that require a connection"

public ActionResult GetMostRecentTransaction(int singleId)
{
    using (var db = new DataClasses1DataContext())
    {
        var transaction = (from t in db.Transactions
                              orderby t.WhenCreated descending
                              where t.Id == singleId
                              select t).SingleOrDefault();
        return PartialView("_transactionPartial", transaction);
    }
}