The rotate does not work for me either.
Just updated to Atahualpa 3.7.6 and after restoring the pictures for the header directory, I have tried with E 9, Firefox 11 in both Windows and Linux, Chromium in both Linux and Windows.
Images are located correctly, as I can see them, and everytime I reload the page, a different (randomly as set) image appears, but the fade in/out does not occur and rotation never happens.