I have yet to choose what I will do for Hackweek (likely do tech support for those trying to use Moonlight to spice up their desktop apps), but I helped a little bit on the Desklets project that Everaldo initiated:
As you can see, although the clock is transparent it is still showing the title bar, am not sure what is the right way these days of removing it. I do not think its using a POPUP window, is it?
Some folks from the Moonlight group (and other Mono hackers) are building a new desklet infrastructure for the desktop. The idea is here: Implement Desklets Using Moonlight and some sample code is available already in moon/desklets/lameclock as a reference in our Anonymous SVN repository.
You will need to install Moonlight to get it going.
You can watch a video of the new tool "mopen" launching the clock desklet that I hacked in a few minutes. The animation does a double fade: fade from clock to config and from config to clock. We could use more complex animations, using the Storyboard and Animation features, but this is what I cooked in 10 minutes: