When I switch on auto rotate, the thumbnail does not load, nor does the image.

I've tracked this issue, and the closest thread was this 2 years ago:

http://www.zenphoto.org/support/topic.php?id=1551#post-8812

I've cleared cache's, refreshed the metadata, reset thumbs, done a fresh install, and I am running 1.2.6. I've also tried different themes, and reuploaded the images to no avail.

I've checked the memory_usage of my dreamhost php and it's set to 90m in the php.ini file.

The album and cache folders are set to 777 access. Dreamhost uses php5.2.9

Pretty much, I've done everything, and followed every piece of advice, short of installing my own PHP database, or reuploading gig's of reorientated pics.

Your PHP memory setting may not be what is actually allocated by your server.

At any rate, you should find your CGI log and report what error you are getting.

This is undoubtably an issue with insufficient memory to do the image processing needed to rotate the image. But you can know for sure only by finding your CGI logs. These are stored in various places depending on your server configuration/php/apache installation and configuration. You will have to ask your provider for help finding it.