I just did this in Word 2008. I'm not sure if other versions are slightly different. They may be.
But all you should have to do is select the image. You'll see on all 8 sides, where you can drag the image to make it bigger. Ignore those. Above the top one, there's a green-ish circle that shows up. You can click on that, and drag your mouse/trackpad around clockwise/counterclockwise. This will rotate the image.
Hope this helps.