Allow 1-1/4 cups butter and eggs to stand at room temperature for 30 minutes. Meanwhile, grease and flour a 10-inch tube pan; set aside. In a medium bowl stir together flour, baking powder, baking soda, and salt. In a small bowl combine milk, 1 tablespoon of the orange peel, and 2 tablespoons orange juice. Set bowls aside.
Preheat oven to 350 degrees F. In a large mixing bowl beat the room-temperature butter with an electric mixer on medium to high speed for 30 seconds. Add granulated sugar, beating until combined. Add eggs, one at a time, beating well after each addition. Stir in vanilla. Alternately add flour mixture and milk mixture to butter mixture, beating on low speed after each addition just until combined.
Pour batter into the prepared pan, spreading evenly. Bake about 45 minutes or until a wooden toothpick inserted near the center comes out clean. Cool in pan on a wire rack for 10 minutes. Remove cake from pan and place on wire rack set over waxed paper. Using a long wooden skewer, poke several holes all over cake.
For sauce, in a small saucepan stir together powdered sugar, 1/2 cup orange juice, 2 tablespoons melted butter, rum, and cornstarch. Cook and stir over medium heat until thickened and bubbly. Cook and stir for 2 minutes more. Brush 1/4 cup of the sauce over warm cake. Cool cake completely. Cover the remaining sauce; set aside.
Before serving, in a chilled medium mixing bowl beat whipping cream on medium speed until soft peaks form (tips curl). Fold in the remaining 2 teaspoons orange peel.
Spoon some of the remaining sauce over cake. Top with orange slices and the remaining sauce. Serve cake with whipped cream.