XnView Software

Same issue; following.

Davinci Resolve has an effect called 'Blanking Fill' which is one option for how this might look.
https://www.provideocoalition.com/wp-content/uploads/resolve125-blanking-fill.jpg
One of the parameters in that effect is 'Blend Edges', which smudges from the image to the background. That might be ...

XnView is almost perfect for a dynamic slideshow. Almost.
What is does well:
* Starts slideshow from command line, using .sld file
* Detects changes in images, and refreshes each 'round'
* Can specify a folder, instead of a list of files

Shortcomings:
* It only picks files with lowercase ...