While rotating an object around another, I have noticed the rotating object(which is using a Character Controller) does not collide with objects. I can only assume this is because the physics system is interpreting this as a "warp" similar to translate. How can I fix this?
character controlers don't generate collision events when you don't use Move method. you should create a collider with is trigger enabled and then attach the collider to another gameObject and make that GameObject parent of character controller and then move that gameObject. i don't remember if you are able to add triggers to character controllers or not. take a look at collision reference page to find more info.
Rather than explicitly setting the position, you'd have to apply forces. With the character controller, that involves the Move function. Other objects would use AddForce/AddRelativeForce.