I'm basically back to ground zero, as I've had no success. I've tried three different approaches:
1) Fades on different layers. Three layers, with one cityscape image on each, and offset fade values (0,2,2; 0,6,2; 0,10,2.) This looks correct, but it only works once. So it fades, but doesn't loop.
2) Animation frames. A three frame animation, with one image in each frame, timing set to (1). Loops, but doesn't fade.
3) Fades with events. This is the approach I thought would work, but doesn't at all. On the event sheet, I tried to use the fade conditions (FADE: on wait finished) on the first image to trigger the fade (FADE: Start fade) on the second image, and so on. That didn't work at all.