The problem was that on importing a folder of photos, the thumbnails were all black. I had also had my privileges corrupted on my user folder by a bad installer, and could not empty trash, or create new folders, etc. I fixed the privileges, but still had the same problem with iPhoto. All the usual fixes didn't work -- logout/login ; rebooting ; created a new user; trashed preferences file; rebuilt iPhoto library (this actually turned all the good thumbnails black as well!). I even moved the iPhoto library folder to allow iPhoto to create a new blank library, and that didn't work. Nor did trashing iPhoto and reinstalling an earlier version
The only course of action left was to re-install the full system. I backed stuff up, and did an erase and install. Over the next few days, I then brought everthing up-to-date, checking iPhoto operation at each stage. I wasn't sure if QuickTime7 may have been cause, so I only installed QT 6.5.2. Finally, all up-to-date and running OK again, and then ... it did it again! What caused it?
At some point in getting back up-to-date, I had re-applied my previous workaround to fix a bug whereby iPhoto changed the embedded colour profile from sRGB to Generic RGB when editing a photo. I did this by modifying some files in the /System -> Library -> ColorSync -> Profiles folder. I discovered that changing any colour profiles there results in the default permissions being changed on said files. However, resetting the permissions did not fix it directly. To fix it, I had to copy this folder off my daughters' Mac, then fix the permissions again. Finally, it was fixed!
The moral of the story? Don't touch any colour profiles in your system library!
[robg adds: This probably only affects a very small number of users, but if someone's searching for a fix, at least they'll be able to find it here...]

