Well guys, I have good news and bad news.
The good news is that this can be fixed. In scouring the net for solutions to this problem I came across a piece of software called "FastPictureViewer Codec Pack". I was immediately skeptical and wary, because in the past I have messed with "Codec Packs" and had them wreak all sorts of havoc.
But after reading some feedback on various photography forums, this is actually high-quality software and not something thrown together by amateurs. What it's really meant for is to add RAW file support to Windows. MS released their own pack to support RAW, but FastPictureViewer seems to support more RAW formats than the MS pack.
But the gem for us is that there is a replacement JPEG codec in the pack that not only enables display of EXIF data in explorer but also correctly interprets and honors the image rotation data. So it solves this problem for us (at least it did for me).
The bad news is that it's not free. It costs $15 but there's a free trial version you can install and see if it works for you. When you run the installer it gives you a choice as to what components to install. I unchecked most of the other formats since I don't use them. After the reboot all of my upside-down and tilted photos were displaying properly in explorer and media center.
I haven't gotten it working yet on my media center extender but have e-mailed their support folks to see what can be done about that--it is supposed to work so I am optimistic about the prospects.
Hope this doesn't sound like a shill post (I myself am often skeptical when I see reviews on the web) but I have absolutely no connection to this software whatsoever. If anyone finds any other software that can correct this issue for Windows users please post in this thread so we can have some options.
Here's a link to the FastPictureViewer Codec pack. Hope others find it helpful:
http://www.fastpictureviewer.com/codecs/