I guess I never knew there was a problem until I read this thread. I've been using my iPhone 4 and 4S for video capture. Since updating to iOS5 I use them with the volume control buttons in the upper right and use the vol up button as the shutter. I then edit the video either in iMovie on the device or in Final Cut Pro X if I want more features. Absolutely no problems with upside down video at all. I haven't shared any of my footage that has been edited with iMovie on the device or in FCPX so I don't know if there is a problem with footage processed in those apps. Perhaps they 'rotate' the image during rendering...??
I do know that other video programs on my iMac--VLC, video conversion programs that display the video, etc., do not display the video correctly, i.e. as reported elsewhere in this tread it is shown upside down but with Quicktime/FCPX/iMovie I've never needed any of those third party programs. I am curious, though, so I'll probably get around to testing a iDevice iMovie render to see if it is 'up' side 'up' or still upside down on third party apps.
Ok, curiosity got the better of me. Clips rendered by iMovie on my iPhone 4 and 4S do have the images rotated so that the clip displays correctly on VLC (that's the only third party app I tested).
As to cause...I don't know anything about metadata in video clips, but I wonder if it isn't the same 'problem' that affects still images on iDevices since about version 3.13 of iOS. The iDevices with cameras do not rotate the image before saving, they set the EXIF field which tells third party apps how the image should be rotated so that 'up' is 'up'. Many apps still fail to honor this EXIF data field even though it has been around a long time. Perhaps video clips have the same or a similar metadata field and most third party programs do not honor it at this time--Just a thought.