I\'ve just determined using Firebug that when Fancybox window is created it actually takes all of my ASP.NET controls (contained in DIV tag) and puts them outside FORM tag.
The above update didn't work for me, the fancybox was still added outside the form. I then commented out those 6 lines in jquery.fancybox-1.3.2.js and found they weren't being used at all in my code.
I did a search on 'body' in the fancybox js files and changed it to 'form' in:
jquery.fancybox-1.3.2.js (ln 484)
jquery.fancybox-1.3.2.pack.js (ln 27, ln 41)
The fancybox is now getting added to the form and the server controls are working.