I couldn't get iMovie HD to insert an iPhoto picture correctly. I had imported some digital camera pictures into iPhoto, and then rotated some of the images. Some others I rotated and also did a little bit of modification (i.e. change color, crop, etc). After doing this work, I switched to iMovieHD to import my images.
To my surprise, iMovieHD did not see my 'simply rotated' images with the proper orientation. Images that I also 'touched up,' however, showed with the correct orientation. I guess this has to do with the stored state of the picture -- duplicating the old one, instead of merely doing a rotation. At any rate, I was able to reproduce this several times. I've reported the bug to Apple, but for now, be aware of this limitation if you're using the iPhoto/iMovieHD integration.
[robg adds: I was also able to verify this behavior. As a workaround, just make sure you do some minor modification to the rotated images before trying to use them in iMovieHD--crop a small bit off, enhance one pixel, etc. Once you've made any change at all, the rotation will be correctly shown in iMovieHD.]
Mac OS X Hints
http://hints.macworld.com/article.php?story=20051021212042321