I believe the fact that you used a third party plugin is what is stumping others. For my part, I went ahead and downloaded rexrainbow's rotate plugin. Try removing such plugin next time before you ask for help, it might speed up the process a bit.
For your problem, there's two reasons why your bullets are falling behind. First, the "Destroy outside layout" is inappropriate for this situation, since you are rapidly exiting the layout, that's why the bullets disappear after a while and seem to stop spawning. Second, the reason why the bullets seem stationnary is because they are actually travelling at the same speed as the ship ! Try adding some speed to the bullet behavior and it should work ok.