During testing of an addon I'm writing I uncovered a possible bug in cycles or blender.
To reproduce run this addon: http://www.pasteall.org/30869/python
(it creates a test scene for rendering materials)
In cycles 3dview solid mode the plane object looks correct
In cycles 3dview rendered the loc/rot/scale are not applied to the plane & the cube is blocky
When rendering (f12) the plane is also correct.
In the addon line 200, I commented out:
# bpy.ops.object.transform_apply(location=False, rotation=False, scale=True)
as I found this fixed the issue, however given that I only apply the scale I think there may be a bug in cycles or bmesh taking into account transforms.
Fix in svn now. Note though that you should avoid such scaling, it will cause many other things in Blender to fail, e.g. just transforming vertices in edit mode will not work for such degenerate matrices.