Hi
Well...That has generated some posts! But that's what the forum is for... 
OK Dougie and Jonsri and anyone else stumped with my explanation.....! (Borate excepted ) These are the steps (in detail) that I use in version 4.21 instead of the IN/OUT method and should (will!) produce a neat crossfade. It works in both 2.41 and 3.04. (but in 3.0x you add the transition in a slightly different way, apart from that the steps are identical. OK, Its a bit pedantic and I am probably telling auntie how to suck eggs but bear with me....
Place a clip on the timeline that has plenty of movement in it. (CLIP 1)
Place a second clip after this, again showing plenty of movement. (CLIP2) The two clips will automatically join up with a blue line between them. The movement is so you can see better what is happening when you review the finished transition.
We are going to add a crossfade between them of 4 seconds. (But any duration will work here) So....
Click the blue square with the lines across it at the end of CLIP 1 and add a crossfade effect of 4 seconds. This will produce a yellow bar across the join between the two clips with 2 seconds overlapping the end of CLIP 1 and 2 seconds overlapping the start of CLIP 2 (Adding the transition is slightly different in 3.0x but put a 4 second crossfade between the clips)
Now...If you play the sequence at this point slowly by dragging the red cursor line over it, you will see at the beginning of the transition a still image from the start of CLIP2 faintly appear. This will appear to fade in as CLIP 1 plays and fades out,
At the half way point (the join), the still image from start of clip 2 will be replaced by a still image of the last frame of CLIP 1 and this will appear to fade out whilst CLIP 2 plays and fades in.
It is these still images from the ends of the two clips that people have complained about.
You are actually playing both clips fully but using stills from each to make the respective fade out and fade in. Total length of the two clips remains the same.
So, to make the perfect crossfade without conciously using the IN/OUT markers..............
Activate CLIP 1 by clicking it.
Drag the red sequence line marker along so it lines up exactly with the start of the yellow transition bar.You are going to use it simply as a reference line.
Place the cursor on the blue join line between the clips and it will turn into two vertical lines with small arrows to each side.
Now grab the join line (which is now the end of CLIP 1) and drag it to the left so the cursor icon is just past the red line.(Use the little arrow on the right of cursor icon as your guide. Leave it touching the line.) (This is what I meant by dragging the end of the clip)
Activate CLIP 2 by clicking it
Now move the red cursor line to the right so it lines up with the finish of the yellow transition bar.
Grab the join line again (which is now the start of CLIP 2) and drag it to the right so the cursor is just past the red line.(Use the little arrow on the left of cursor icon as your guide as above.) (This is what I meant by dragging the end of the clip)
When you play the sequence now, both clips will play during the complete transition and there will be no still images.
In effect you are using IN/OUT markers to set the clips, (you will see the IN/OUT markers move as you pull the clips back in the left hand preview window) but by using the red cursor line lined up with the transition bar you are ensuring there is sufficient "cut off" from each clip to play during the transition. If you don't pull back the clips beyond the ends of the yellow bar you will get still images.
Obviously if you don't have enough video in each clip to trim off in this way but still need a transition then you will have to put up with still images.
Nat.
