This happened to me at a tourny last weekend and I cried foul as I'd never seen it happen before, but here's the explanation...
http://warhammer.org.uk/phpBB/viewtopic.php?f=3&t=56438 Yup. Radiate line of site from each model, but the other models still block each other.
This is commonly misinterpreted, as individuals using fast cavalry poorly forget about the rules on BRB, page 8:
"Facing and Arc of sight: the 'arc of sight'... determines which opponents the model can shoot or charge."
Arc of sight establishes that line of sight works in 90 degree arcs. In other words, a 360 degree line of sight = 4x90 degree arcs. There is no such thing as a 'sliver' of line of sight coming off a model.
Shooting: Line of Sight (BRB 26)
"The rules determining a unit's line of sight are given on page 8, but in the case of shooting, each model needs to see its target (instead of using the entire unit's line of sight)" (BRB 26).
So, if an individual model's left or right arc of sight is blocked, it cannot fire on a target in those arcs.
"Remember that models and terrain block line of sight," (ibid).
The final hint is in the fast cavalry section:
Fast Cavalry: Line of Sight
"In the shooting phase, fast cavalry models can fire all round, regardless of the direction the models are facing (this, of course, does not allow them to shoot through friendly models, which still block line of sight as normal)," (BRB 70) "As normal" surely indicates that flank, front, and rear arcs are still in play, irrespective of the fact that the model might be able to fire in each of these.
I want to point out that this last, very convincing, rule - directly pertaining to fast cavalry shooting - does not need to state that a model cannot shoot through other models some distance away; it is only emphasizing that fast cavalry cannot shoot through models in its own unit.
To summarize:
1) Units see in 90 degree arcs (this is emphasized again in the BRB when it discusses charging) - nothing about "seeing all round" trumps these arcs; 360 degrees = 4x90 degree arcs. There is no such thing as a 'sliver' of line of sight; nowhere is this designated in the rulebook. A unit in your left or right arc remains in your left or right arc, even if you can see all round.
2) Each model that fires in a shooting unit must see its target: this is a restriction to firing, and is written as such.
3) The Fast Cavalry rule specifically restricts models firing where their line of sight is blocked by other models; the only reason to include this point is to restrict firing at targets in blocked arcs.
Some argue that line of sight slivers can be drawn from the front or back of individual models, deciding to ignore both the necessary precondition of arc of sight and a lack of evidence offered by the BRB.
Please note that while those guys on the other forum produce lots of self-made diagrams, they don't seem to cite too many actual rules. Common sense might dictate certain colloquial understandings of how things ought to be played, but if that's the case, then my Marauder Horsemen should be able to fire bows from horseback while riding in multiple counter-rotating circles... we have rules for a reason, and "still block line of sight as normal" means that arc of sight is not trumped, and line of sight is still blocked by adjacent models in arcs.
Finally, arguing against models blocking line of sight on the flank dumbs down the game by reducing the tactical subtlety of one of its most interesting units: fast cavalry with missile weapons. If your opponent deserved to shoot, he first should have learned to move his units correctly.
Cheers.