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Sorry, Sam - I read your post quickly and for a moment I thought you were saying the opposite.
@dv8_fx - If you look at the OP's screen grab, it appears that he is viewing at 33%, and from the thumbnails in the layer stack, it looks like his white square is about 1/3rd the size of the background (in linear dimensions). So, since 33% is a very reasonable magnification, stair-stepping after rotation should be almost invisible, and when I simulated it, that's what I saw. So, I think there is something else going on. That's why I asked for his PSD file. I bet some vital piece of info is getting lost along the way to us.
Tom
Tom, I think the OP's zoom is a bit higher.........unless I'm looking at the wrong one.