You cannot create fades within a DVDA Picture Compilation, As you suggest, the best way is to create the file on the Vegas timeline.
In Preferences > Editing you can set both the default still image duration as well as check ‘automatically overlap multiple selected media when added’ along with the Cut-to-Overlap (transition duration).
When you add all the images, the duration and overlaps will all happen automatically.
If your images are already on teh timeline, you can add overlaps with a script. Excalibur is especially good at this.
Gary Kleiner
Learn Vegas and DVD Architect
http://www.VegasTrainingAndTools.com