I've never had this happen before. Suddenly, when I try to overlap two clips in the timeline, instead of dissolving the second clip just takes over as if it were at the end. Have I accidentally changed some default or what's happening. Help!
There is an icon near the top that looks like two overlapping triangles (between the Snapping icon and the AutoRipple icon) that turns automatic crossfades on and off.
Also, Ctrl-Shift-X toggles automatic crossfades on and off.
'Just though I would throw this in because this just happened to me (in case none of the above suggestions work)...
When using ctrl-drag (duplicate clip), I accidentally ended up with two identical clips placed right on top of each other. With auto-ripple ON, they were dragged together to make the cross fade, but the cross fade didn't appear when I played the video. Just a sharp cut. It was hard to tell that I was dragging two clips and why the cross-fading suddenly wasn't working.