Hi,
Some photo applications will display a photo as rotated which is referred to as soft rotating by reading metadata on the photo itself. Although the Photo Gallery rotates photos on import using this same metadata, many a times it doesn't also rotate all un-rotated photos in their collection for them automatically, or at least display the photos as rotated like some other applications do.
The reason that the Photo Gallery rotates on import, but not after that is because there are a number of applications that don't correctly update the photo metadata after rotating. This metadata is supposed to reflect the state of the photo, but if the photo is rotated without updating this metadata, another application using this metadata to determine whether or not to rotate it will incorrectly rotate the photo.
During import, the photos are coming directly from the camera, at which point the integrity of this metadata is not in question. So although it's safe for the Photo Gallery to rely on this metadata to make an accurate rotate decision during import, as soon as the photo makes its way to the PC, any other application could interact with the photo, and potentially corrupt this metadata. Therefore, the Photo Gallery doesn't soft rotate at this point.
Regards,
Syed N – Microsoft Support
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The great part of Microsoft's answer is this explanation and this is how it reads to me; well if other programs don't read and write Exif data correctly, Windows and MS products shouldn't either. Don't cater to the bad programs, program to a higher standard and then people will make the choice not to use these ones that don't work correctly, or allow your software to update or correct the metadata to repair these photos with bad metadata, making your product superior and the product people actually want to use.
Microsoft, any fixes expected for Windows 7 Explorer and Photoviewer coming soon?
Come on Microsoft, get your act together, there is a reason people are leaving you so quickly for Apple!