By setting the position of the image to absolute, you remove it from the flow of the document (where the rest of the text is) and lay it on top.
Edited:
I adjusted the CSS to:
#slideshow {
position:relative;
height:1000px;
}
#slideshow img {
position:absolute;
width: 50%;
top:0;
left:0;
z-index:8;
display: none;
}
#slideshow img.active {
z-index:10;
display: inline;
}
#slideshow img.last-active {
z-index:9;
display: inline;
}
Perhaps that's more like what you want. You'll need to come up with a sane height that matches the bulk of your content, but that seemed to fade pictures in and out with a minimum of "popping" when they got to the end of their cycle.