When you say fade, is it gradual or does it cut in and out? I've had selector switches go bad where it just cuts out. I had a volume pot go bad and it just cut the level drastically unless you hit the right spot. Changed the pot and all was fine.
I don't think I've ever had a tone cap go bad. Those things are rate for anywhere from 50v to 400v, and we're sending mV levels through. Besides, a tone cap only bleeds off high frequencies for the signal. Turning the tone control all the way up essentially takes the cap mostly out of the circuit, since you're putting 250 to 500kOhms in the R/C circuit.