So, despite how perfectly .fadeTo works with FF and how easy "opacity: 0.40;" is to write, it seems like MSIE is lost and confused.
In MSIE 8, with compatibility mode off, then .fadeTo process appears to be roundly ignored (at least for jquery 1.3.1). If you turn compatibility mode on, it behaves in the same manner as MSIE 6 and 7, which is this: Given an inline span with a background color, some margin (2/4/0/0), some padding (1/8/1/8), and a word bounded by a border (1px), MSIE will apparently add ~2px of padding to the top and bottom of the element, and then correctly apply the fade. Problem, of course, being that the extra 4px of padding makes the item that is fading out stand out from its smaller peer elements. If I had to take a guess, I'd expect that the resizing problem is the "elem.zoom = 1;" (line 1031 in v1.3.1) as that allows/forces MSIE to think about things have been rendered and potentially re-render them. But it's just a guess at the moment. Anybody got a better theory as to what's going on (and how to resolve it)?