Ok - latest update on this, I'm now not convinced this is actually an issue with iMovie 11 but a problem with iPhoto.
What I have discovered is that I have an event with circa 500 photo's in - what ever photo I use from this event seems to behave oddly in the iMovie timeline - as per my description above. However - if I go into iPhoto and edit a photo in this event, do something to force a save, then use this photo it works fine.
I'm not having the issue with any other photo's or events. They only work around I can find is as above. I have tried creating a new event and moving all the photo's in there but the behaviour is still the same.
Any idea's most welcome.
Ok - for anyone interested, after doing a library rebuild on iPhoto which did not resolve the issue the only thing I have found is a work round. As mentioned above if I add one of the photo's from the one event that appears to be the issue it does not display correctly in the timeline. If I go into iPhoto and edit the said photo, a simple crop or straighten, the photo is saved and I can then insert into the timeline with no issues. Any photo's in the event I don't touch still seem to have the problem but I guess at least I have a work around.
Hope that's of some use to others.
I've been having issues with photo in iMove '11 that so far appear to be resolved by clearing the cache.
I did create a test project with photos both before and after emptying the cache that worked fine.
Yet as I am sure you know, this problem is often not consistent!
Here are the steps and how to find the cache!
1 Open finder
2)on the left of finder window click on "home" or your user name in finder near the icon of a house.
3) open the library
4) drag the ENTIRE cache folder to the trash (no need to find any specific cache folders)
5) quitting all apps/software excect Finder
6) Restarting the computer
7) Empty tash (optional)
8) reopen iMovie
Apple Phone support told me that if the problem continues after this process that it may remain only in my porject and that it could be might be that I need to manually recreate my entire project.