When an element is created out of the DOM and it's hidden then it does not appear when simultaneously inserted into the DOM and faded in.
This is the scenario where I found it, perhaps the simultaneous part / external to the DOM is not relevant.
Bug occurs on my Ubuntu versions of Chrome (7.0.517) and Opera (10.63), but not Firefox.
Not sure if this is a true bug as the scenario might not be a feature jQuery intends to support but it is a regression since 1.4.3.
Could be related to bug #7331 which has been fixed -raised after my comment on GitHub:
Hope this helps with the release,
PS someone else has written comment:3:ticket:7331 about the loss of the original display value (inline, block), could be related, not sure if a proper bug has been filed for that issue either so thought I'd mention it here