Is anyone else having problem with it?
In the admin page I set the format as 'xx Feb 2008' but the displayed date is 'xx February 2008'.
I tried to set it back to custom so that I can change it manually but ZP won't let me.

Which version, 1.1.6 or nightly?

Latest nighlty build, but I've been having this problem since 1.0 or so.

What theme? It is possible for themes to override the option.

What does the option show in admin after you change it? Is it showing the right format or does it revert?

I was using a custom theme but I tried all of them just to made sure I wasn't doing something wrong. And the problem is there with all the themes.
I don't think it's a server problem either because I tested it both locally with xampp and then online. Same.

It reverts. It's working with most of the options minus 'custom' and '%d %b %Y', at least that I know of, I haven't tried all of them.
Anyway, If I set it to 'custom' the field (the one where you could put formats)disappears!

I checked and I can at least reproduce that that custom date field does not show up for me.

Well, sometning is definately wrong. The field where you put in the format string should be visible ONLY when you have selected "custom" for the date format. If you select one of the other items from the drop-down list the field is not used. This may be the reason why it is reverting.

Once you've changed the option, the format string field is gone forever.
Until someone fixes this, is there a way to edit the date manually?

You could do it manually in your theme: http://www.zenphoto.org/documentation-official/zenphoto/_template-functions.php.html#functiongetImageDate

Thanks!

Ok, I have found that the hide/show of the custom date field fails in FireFox. (It works in Internet Explorer, so I figured it must work everywhere....) This is fixed in tonight's build.