Yeah, I see a noticeable degradation in the image quality when you rotate it. None the less it is a cleaner more dynamic method then using photoshop. I have now implemented it in my site. You can also get rotation in ie with :

filter:progid:DXImageTransform.Microsoft.BasicImage(rotation=3);

but I don’t think you can get all angles only 0, 90, 180, 270.
check Snook.ca for more.