I've run a test on a 28 minute project. The video was imported as Large (960 x 540) optimized - so it's in Apple Intermediate Codec (AIC) format.
Rather than using the speed slider in the Inspector and typing in 2000%, I changed the speed by using the menu item "Clip > Fast Forward ⇒ 20x" (2000% is of course 20x). This worked instantly. The clip thumbnails were immediately shortened in the timeline (reflecting the faster speed) - I had them set at each thumbnail representing 2 seconds. Playback was instant also with no waiting whatsoever.
I also tested by using the speed adjustment in the Clip Inspector. Typing in 2000% in the box alongside the slider also worked flawlessly, with all clips (28 minutes) selected.
So, in my case, iMovie is working perfectly with speed changes, no matter which method I use. I'm not sure how it would go when Sharing (exporting) - perhaps rendering will take extra time due to the speed change.
My testing was done on Mountain Lion (Mac OS X 10.8.3) and iMovie '11. From your profile, you appear to be on Snow Leopard (10.6.8) - is this still correct? Also, what version of iMovie are you using?
You may need to trash iMovie's preference file. If so, follow these steps (I've included references to Lion and Mountain Lion for the benefit of other users on those systems):
Ensure that iMovie is closed.
In Finder, go to the folder <your user name>/Library/Preferences (where <your user name> is your Home folder). For users on Lion (10.7) or Mountain Lion (10.8), the Home Library folder is hidden. To access it, in the Finder menu bar click on Go while holding down the Option key.
For iMovie '11, in the Preferences folder locate the file named "com.apple.iMovieApp.plist" and drag this file to the Trash. For versions prior to iMovie '11 (currently version 9.0.8) the preference file has a slightly different name. For example, for iMovie '09 the file is named "com.apple.iMovie8.plist".
Open iMovie - a new preference file will be created with the default settings (this happens in the background while iMovie is loading).
If iMovie is now working OK, you can change the default preference settings as desired - click on iMovie's menu item "iMovie > Preferences" and make the desired changes for the relevant items in each of the tabs.
Hopefully this will fix your speed change problem - but no guarantees!
John