Heres a nice little solution - http://jsfiddle.net/pYECC/7/
$(document).ready(function() {
var images = ["image1", "image2", "image3"];
var x = 0;
setInterval(function () {
$("#" + images[x]).fadeOut(1000, function () {
x++;
if(x == 3)
x = 0;
$("#" + images[x]).fadeIn(1000);
});
}, 3000);
});
With this you need to remove opacity from your CSS. You need to make images 2 & 3 display: none;
by default.