Autodesk really needs to just fix this and get rid of Proxy images....
Unfortunately, the only way to get rid of proxy entities is to also get rid of vertical products, and release only a single, all-inclusive version of Autocad. A proxy entity is nothing more than an entity that encapsulates another entity that your version of Autocad doesn't know how to deal with. For example, vanilla Autocad doesn't know how to deal with Land Desktop's Contour entities; therefore, if you don't have LDD installed, the contours show up as proxy entities. The encapsulation lets Autocad work with the object on a basic level, allowing the users do simple things, like move the proxy entity. Vanilla Autocad doesn't know anything about how the contour entity works, though, so it can't let you edit it. It has no way of knowing what interdependencies the object may have. Editing one aspect of the entity might require editing another aspect; without knowing the definition of the entity, Autocad's only safe option is to not allow you to edit it.
Autocad's solution to this problem is the Object Enablers. These are extensions that "know" more about how to deal with these custom objects. However, the enablers still don't know how to edit or create them - if you want to edit or create a Mechanical Desktop entity, for example, Autodesk wants you to buy Mechanical Desktop, not just download the free object enabler.
The only way around this is to explode the proxy. This causes Autocad to explode the entity, keeping only the pieces it knows how to work with, and throwing the rest away. You can now edit the pieces. But of course, now your original entity is gone. In the above example, if we now opened the file in LDD, the contour would be a polyline, and all the Contour information would be lost.
The confusion you're having might be due to the fact that many of these proxy objects are actually rather complex objects, consisting of blocks within blocks. Sometimes you have to explode a number of times to get all the nested blocks exploded. The peculiarities you mentioned - changing layer names, self-rotating entities, etc. - are due to the way nested blocks work.
However, I do agree with you that Autocad needs to fix their implementation of these proxy entities. I, too, have had that problem of "disappearing entities", because proxy entities can't be WBLOCKed. Autocad just silently filters them out of the operation. That's annoying.