Illustratro CS 5.1 snap issues

Out of the blue now, Illustrator is driving me nuts.
I am trying to create a rectangle in an existing Illustrator drawing and rotate it into place.
I draw the rectangle and then click on the "election" arrow to rotate the rectangle to the angle I need. However, as soon as I click on the selection arrow, a bounding box that includes the rectangle and a significant area outside the rectangle is selected. This causes a problem because the rectangle is not the size I need and when I try to rotate and strectch it to fit the area I want, the handles encompass and area much larger and rather than being able to just drag the handles to the size I want, I must play around with them to try to get them to fit.
I've searched a number of different forums and this appears to be an on-going problem. A number of people said to turn offf snap to grid, snap top point, smart guides, etc. All of these are turned off, but Illustrator continually insists on drawing the recatangle at the initial size I want, but then encompassing a much larger area outside the actual rectangle. Someon suggested going to the Transform menu and turning off an element there, but I wasn't able to find that specific element (perhaps a newer of older version of Illustrator). Someone else said to else suggested going to the align menu and making a change there. Again, my align menu doesn't provide the option that was suggested. I have tried everything I can think of and am getting incredibly irritated.
Here is a screen shot of what I'm talking about -
When I draw the rectangle it looks the way I expected it to. However, as soon as I pcik the selection arrow, I get the huge bounding box that has no  correlation to the rectanlge I drew.
I even treid drawing the rectangle off the artboard and moving it into place, but the same thing happens, wherever I draw the rectangle.
I had preivously been using Illustrator CS3 and NEVER had this issue. Only in Illustrator CS 5.1.
I'm ready to dump CS 5.1 and go back to CS 3 - since it works as expected.
Any help/suggestions would be greatly appreciated!

This drawing is from an AutoCad file so there are a lot of layers. I did try to create a blank layer and draw the rectangle on it, but same result.
That said, the vast majority of my files are from AutoCad and I've never had this issue previously, i.e. the past 10-12 years.

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