diff -r bc0cc30635db app/models/project.rb
--- a/app/models/project.rb	Thu Aug 02 17:37:03 2012 +0000
+++ b/app/models/project.rb	Sat Aug 04 21:18:46 2012 -0400
@@ -58,7 +58,7 @@
                           :join_table => "#{table_name_prefix}custom_fields_projects#{table_name_suffix}",
                           :association_foreign_key => 'custom_field_id'
 
-  acts_as_nested_set :order => 'name', :dependent => :destroy
+  acts_as_nested_set :order => 'name', :compare_method => lambda { |a,b| a.to_s.downcase > b.to_s.downcase }, :dependent => :destroy
   acts_as_attachable :view_permission => :view_files,
                      :delete_permission => :manage_files
 
@@ -367,6 +367,11 @@
     end
     set_parent!(p)
   end
+  
+  def nested_set_rebuild(parent_node)
+    update_node_order(parent_node)
+    Issue.update_versions_from_hierarchy_change(self)
+  end
 
   # Sets the parent of the project
   # Argument can be either a Project, a String, a Fixnum or nil
@@ -383,23 +388,7 @@
       # Nothing to do
       true
     elsif p.nil? || (p.active? && move_possible?(p))
-      # Insert the project so that target's children or root projects stay alphabetically sorted
-      sibs = (p.nil? ? self.class.roots : p.children)
-      to_be_inserted_before = sibs.detect {|c| c.name.to_s.downcase > name.to_s.downcase }
-      if to_be_inserted_before
-        move_to_left_of(to_be_inserted_before)
-      elsif p.nil?
-        if sibs.empty?
-          # move_to_root adds the project in first (ie. left) position
-          move_to_root
-        else
-          move_to_right_of(sibs.last) unless self == sibs.last
-        end
-      else
-        # move_to_child_of adds the project in last (ie.right) position
-        move_to_child_of(p)
-      end
-      Issue.update_versions_from_hierarchy_change(self)
+      nested_set_rebuild(p)
       true
     else
       # Can not move to the given target
@@ -407,6 +396,15 @@
     end
   end
 
+  def save
+    changed = name_changed?
+    ret_val = super
+    if changed
+      nested_set_rebuild(parent)
+    end
+    ret_val
+  end
+
   # Returns an array of the trackers used by the project and its active sub projects
   def rolled_up_trackers
     @rolled_up_trackers ||=
diff -r bc0cc30635db lib/plugins/awesome_nested_set/lib/awesome_nested_set/awesome_nested_set.rb
--- a/lib/plugins/awesome_nested_set/lib/awesome_nested_set/awesome_nested_set.rb	Thu Aug 02 17:37:03 2012 +0000
+++ b/lib/plugins/awesome_nested_set/lib/awesome_nested_set/awesome_nested_set.rb	Sat Aug 04 21:18:46 2012 -0400
@@ -380,6 +380,34 @@
           end.join("\n")
         end
 
+        def update_node_order(parent_node)
+          order = acts_as_nested_set_options[:order]
+          method = acts_as_nested_set_options[:compare_method]
+          sibs = (parent_node.nil? ? self.class.roots : parent_node.children)
+          to_be_inserted_before = sibs.detect {|c| 
+            a = c.read_attribute("#{order}")
+            b = read_attribute("#{order}")
+            if method.nil?
+              a > b
+            else
+              method.call(a,b)
+            end
+          }
+          if to_be_inserted_before
+            move_to_left_of(to_be_inserted_before)
+          elsif parent_node.nil?
+            if sibs.empty?
+              # move_to_root adds the node in first (ie. left) position
+              move_to_root
+            else
+              move_to_right_of(sibs.last) unless self == sibs.last
+            end
+          else
+            # move_to_child_of adds the node in last (ie.right) position
+            move_to_child_of(parent_node)
+          end
+        end
+
       protected
 
         def without_self(scope)
diff -r bc0cc30635db test/unit/project_test.rb
--- a/test/unit/project_test.rb	Thu Aug 02 17:37:03 2012 +0000
+++ b/test/unit/project_test.rb	Sat Aug 04 21:18:46 2012 -0400
@@ -775,6 +775,35 @@
     assert !project.activities.include?(system_activity), "System activity found when the project has an inactive override"
   end
 
+  # See issue #11508, updating a project does not reorder sibilings alphabetically.
+  def test_rebuild_should_sort_children_alphabetically_on_update
+    ProjectCustomField.delete_all
+
+    # Create 4 projects under a parent project.
+    parent = Project.create!(:name => 'Parent', :identifier => 'parent')
+    Project.create!(:name => 'Project C', :identifier => 'project-c').move_to_child_of(parent)
+    Project.create!(:name => 'Project B', :identifier => 'project-b').move_to_child_of(parent)
+    Project.create!(:name => 'Project D', :identifier => 'project-d').move_to_child_of(parent)
+    renamed_project = Project.create!(:name => 'Project A', :identifier => 'project-a').move_to_child_of(parent)
+
+    # Rebuild them all.
+    Project.update_all("lft = NULL, rgt = NULL")
+    Project.rebuild!
+
+    # Confirm that everything is as expected.
+    all_projects = Project.find(:all, :order => 'lft')
+    assert_equal 'Project D', all_projects.last.name
+
+    # Load and modify project-a, which causes defect #11508
+    project = Project.find_by_id(renamed_project.id)
+    project.name = 'Project E'
+    assert_equal true, project.save
+
+    # Reload all projects and verify that "Project E" is last.
+    all_projects = Project.find(:all, :order => 'lft')
+    assert_equal 'Project E', all_projects.last.name
+  end
+
   def test_close_completed_versions
     Version.update_all("status = 'open'")
     project = Project.find(1)