Remote desktop is not something we overtly test against. That said, it is also not clear if this is a bug in IEGD. Rotation in software is something provided in IEGD with a VERY limited acceptable use case. Rotation is handled by tricking the O/S by giving it a frame buffer that matches the desired rotated resolution, then THAT framebuffer is then re-rendered using the graphics engine to rotate the data for each frame and then that data is shifted out. It is best to avoid using this type of rotations as it causes all sorts of undesirable operation. In very SIMPLE situations it can be made to work, but is not generally recommended because of the compatibility issues and performance degradation that occurs with rotation.
There are also known issues with XP (and XPe) where this scheme will sometimes confuse the Windows manager which ends up only being cleared up with reboots. We definitely update Windows with the new orientation after a change, HOWEVER, Windows does not always recognize it first time out. I think you have found the workaround for this issue with the reboot (or restart). Unfortunately, because the feature is not generally recommended, we are not attempting to enhance the functionality in any way at this time.
My best suggestion would be to either live with the reboots, OR reoirient the rotated screen back to the orientation it was designed to operate in.
Hope this helps. Kirk