Since the request was for a fade - that would imply a gradient from the color of the hr element to the background color, which is why I suggested an image. Maybe a gradient would work. But I doubt it will work in MSIE.
Oh, maybe I misunderstand you meaning. How about if adding shadow to both side of the hr? It work for me, but the problem still in IE7/8 where I use filter to generate the shadow.
Nothing fancy or cool works properly in IE7/8. But apparently it does support gradients in CSS. Look for "CSS gradient background".
Let us know if it works.