So, if you rotate a thumbnail, the picture is not rotated as well? Are you sure you don't have duplicate pictures? You may want to try a re-install, delete the iPhoto app, then the iPhoto receipt in /Library/Reciepts, then re-install from your disks. What version of iPhoto does it say you have in iPhoto -> About iPhoto. I have iPhoto 6 and I cannot duplicate your problem.
iPhoto does not rotate the original image, you'll have to drag-and-drop out of the iPhoto window in order for the changes to show up on external files.