Here is a possible solution:
1. Right click a thumbnail image.
2. Select 'Preview' from the resulting menu. The image will now be previewed in Microsoft Picture and Fax Viewer.
3. Hold down the CTRL key on your keyboard and click the "X" in the top right of the window.
4. A popup window will now appear with the following message (fig.2):
"Any rotation warnings that you may have suppressed have been reset, and may appear again when you rotate a picture."
5. Click OK and your rotation settings will be reset returning the rotation functionality of your thumbnail images.
(Fig. 1)
Rotation warning box
(Fig. 2)
Windows Picture and Fax Viewer dialog box.