There is a quick temp fix for this bug, just apply a background color to the images via the css and hey presto! no more bug. Very strange. I used to find a lot of bug fixes for IE6 and this one is in the same league.
This fix does not work in my case because I'm not fading from image to background... I;m fading from one image to another so if a css background color is implemented all it does is change the color of the bug from black to whatever color is set in the css file. The "colored box" still covers the image that is being essentially cross-faded to.
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