Cycle2 is different to Cycle if you read to FAQ bit on the website.
In Cycle2 after
function is being not used anymore.
If you add the following line to your code it should work:
$('#mySlideshow').on('cycle-after',function(e, optionHash, outgoingSlideEl, incomingSlideEl, forwardFlag){
$('ul li').removeClass('test');
$(incomingSlideEl).addClass('test')
});
You can remove the
after: function() {
$('ul li').removeClass('test');
$(this).addClass('test')
}
Also, Cycle2 works without adding the $('#mySlideshow').cycle({ .. })
bit.
So you can just have
$('#mySlideshow').on('cycle-after',function(e, optionHash, outgoingSlideEl, incomingSlideEl, forwardFlag){
$('ul li').removeClass('test');
$(incomingSlideEl).addClass('test')
});
and everything should work. http://jsfiddle.net/3vjgJ/12/