I had the same issue today, I solved it like this: On the plugin settings page, go to the “Galleries” tab and select “Use a custom expression to apply FancyBox”. Then paste the following code into the textarea:
var gCount = 0;
var $thumb = jQuery(thumb);
NB: There are dozens of forum post related to this issue, however they relate to different implementations of Fancybox plugins for WP. This fix refers only to the “Fancybox for WordPress” plugin found at http://wordpress.org/extend/plugins/fancybox-for-wordpress/.
Sorry for digging up a 7 months old post, but this issue seems to bother quite a lot of people, so I thought a fix might be helpful.