Try opening System Preferences/Desktop & Screen Savers and click on the Screen Saver tab.
In the sidebar, scroll nearly all the way down and locate the icon that says ”Photos” to select that as your Screen Saver pictures (I had trouble finding it at first).
Changing to this file worked for me and several other users to remove the jaggies, which I’m guessing is what you termed pixelated, but I don’t know if it will fix your sideways pictures. I haven’t had that problem. I assume they are correctly oriented in your iPhoto 08?
Also, if you haven’t tried the Mosaic option for the Display Style, have a look. I think it is amazing.
Message was edited by: Bruce Etnyre