jostpuur said:
But for example
<br />
(1-iA\alpha) X (1+iA\alpha) = (1+B\alpha) X + O(\alpha^2) \quad\implies\quad e^{-iA\alpha} X e^{iA\alpha} = e^{B\alpha} X<br />
isn't really correct, is it?
This isn't really what's going on. To see how infinitesimal rotations give you finite rotations, think of a finite rotation as nothing but an infinite number of infinitesimal rotations. For example, if you want to rotate by a finite amount x, then break x up into N pieces x/N and rotate N times. For N very large, this is an infinitesimal rotation so your rotation operator is:
<br />
(1+i(x/N)A)^N<br />
where A is your rotation generator. Now imagine taking N\rightarrow\infty, and you get e^{ixA}, the usual finite rotation.
It is very important to understand that when we are doing these infinitesimal transformations, we are NOT making any approximations - all of the information for finite transformations is there in the infinitesimal transformation! It's not that physicists are sloppy and feel content to only consider "leading order" effects. This is all mathematically well defined and justified.
I should say that I'm being a little cavalier in the above paragraph: there could be so called "topological" complications, which is just to say the way you take the above limit could be important. But these issues are not very important in general, and they don't change anything.
Finally, let me just say that in more advanced applications of these topics (gauge theories, QFT, etc.), it is more appropriate to formulate the physics in terms of Lie Algebras (infinitesimal) rather than Lie groups (finite). For a wonderful explanation of why this is the case, I refer you to your favorite textbook. A very nice one is H. Georgi's "Lie Algebras for Particle Physics", but there are others out there as well.