Never had a problem doing it. The car's liability insurance is good enough for Canada (pink slip is all you need), although you should carry your own insurance documentation just in case.

I've NEVER had a customs officer on either side ask me if I was in a rental, or pay me any extra attention because I was in a rental.

The only think i'd watch out for is the wait at the Peace Bridge--can be very loooooooooooong sometimes. Leave enough time when coming back to Buffalo for your return flight home, or check out this link for approximation of Border wait times at all Canada-US crossings