Are you running a compositing manager? The fade hooks only set window properties for a compositing manager; xmonad is not itself a compositing manager, and I'm not sure it should try to get into that business. (Go look at how compositing managers for X11 work to see why.) compton seems to be the most reliable of the standalone compositing managers, although all of them have bugs. Many thanks Brandon for your reply and apologies for such a late reply. Today I had some time to have a look into the matter and yes, I am using a compositing manager. I was using xcompmgr which was in official repositories. Today I tried to run X with compton and it works perfectly now - this is exactly how I wanted it to behave.
Best wishes, Robert -- For those seeking to enter the felicity of matrimonial alliance n/e is the answer. http://en.wikipedia.org/wiki/Secretary_problem