If by "fusion" you mean "crossfading" then yes I've tried that. Track change is still audible and then buggers up non-ogg gapless media like flac, mpc, and gapless mp3 (they do exist). Since posting the above I've looked at many different players and I'm still holding out hope for a decent XMMS2 client. However, in the short term, the best prospect looks like Exaile
. Version 0.3 will support both gapless and replaygain (2.x only supports replaygain). Other notables include Quod Libet (quite good but no gapless), Rhythmbox (also not bad but no replaygain) and Aqualung (both gapless and replaygain but what a crappy interface). There are others too but I wont go into them. I don't need anything fancy and the XMMS2/Esperanza combo would be adequate if it had dynamic playists/random playback and queuing. At the moment it just takes too much effort to use but it has a taskbar icon and global keyboard shortcuts (I love those). Not to mention XMMS2 needs just a little more work. The next release, DrM, sounds promising.
As for Xine, I wish I could give it the boot. I've never actually been a massive fan of Xine or Amarok but I use them because there isn't anything better for me right now. After posting my original question I found some discussions on gapless in the Xine bug tracker and it seems the devs have problems reproducing the bug and therefore wont fix it. The situation may have changed now but I haven't kept up with it. Xine's approach also seems to be quite hackish according to some people so it's probably not surprising that it works for some people and not for others. All we can hope for on this front is that Xine 1.2 will come out without this bug.
Anyway, that's how I see this whole saga.