Thanks for the suggestions, that's very handy! =) While I think it has helped some, it hasn't made an appreciable difference on the overall performance.
I don't think it's the method of dissolve that's the problem. I tried a scriptaculous fade and had the same issue. I think it's mostly the fact that I have to move and resize the image, requiring the image to be redrawn, thereby making a fade much more complex a procedure. And it's also just the size of the image as well. I took out the resizing code and the fade still had difficulty working on an image of that size. Fortunately, this issue does not seem to affect any browser except the Mac version of Firefox 2. I'm almost to the point where I would consider putting in a browser detect script to detect for the Mac FF2 and suggest they download FF3 to improve performance. FF3 should be coming out soon and hopefully the adoption rate will be quick. This whole thing may be a non-issue in a few months.