<p>I'm looking at using CompositeWPF (<a href="http://www.codeplex.com/CompositeWPF" rel="nofollow noreferrer">http://www.codeplex.com/CompositeWPF</a>) - aka Prism, to build an application I am working on.</p>

<p>The application isn't a traditional LOB application, however it does present data and state information to the user.</p>

<p>One thing which I am unsure of is if CompositeWPF supports more than one Window or Shell. I would like to have my application notify users with a border-less window which appears in the lower RHS of the screen (think MSN notification) but still use the idea of views being injected into the region etc.</p>

<p>In addition to this I would like to be able to react to a user action (e.g. double click on something), hide the main window and present a progress dialog while work is being performed.</p>

<p>So, is this possible?</p>

At its simplest, a fade effect like this just requires a timer of some sort that gradates the color back towards normal with each tick.  The faster the time, the more discrete colors you will display from start to finish, and the smoother the overall effect will be (WPF may have something built-in to do this).
You definitely
do not
want to repaint in a loop.  As you pointed out this will block the UI, and also you would not be able to control how long the loop takes (different machines will render the same number of steps from highlight color to normal in different lengths of time).