Only tested in Milk Jug Toss, but the playermodel fade only seems to apply to other players actively playing games, not players walking around. Other players can still block your view.
Steps to Reproduce
Play Milk Jug Toss on the boardwalk, and have a player walk in front of you.
What I expected to happen
Your view is not obstructed as the model fades.
What happened
Your view is obstructed.