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Problem. Transitions to the Register state work fine, but transitions back to the original Login State don't. The panel just disappears, no fade, and then the button [State:Login] fades back in nicely. It appears that the controls in the Register State are removed by default before any effects can play visually on them. Using a Sequence and setting the duration of the Panel fade to 10 seconds proves that the effect does play, since it delays the fade in of the button [State:Login], however the control is no longer visible because we're no longer in the Register State.
I realize this is probably confusing... but those of you that have come across this same problem will recognize it. I poured over the LiveDocs but it took just alot of troubleshooting different ideas before I got it working. I've posted a working demo in my Flex Projects column to the right. As usual, right click on the demo to get at the source.