Tutorial Fade Image Into Another Image
Make a div that is the exact size of the image. This div will have a background image applied to it of the second image. Then put an inline image inside it.
<div id="kitten">
<img src="http://cdn.css-tricks.com/images/kitten.jpg" alt="Kitten" />
</div>
Fading the inline image in and out will reveal/hide the second (background) image.
$("#kitten").hover(function(){
$(this).find("img").fadeOut();
}, function() {
$(this).find("img").fadeIn();
});