So, as you can see from the pictures below, the top of my poor '95 SE is starting to fade (or oxidize or something) very quickly. You might not be able to tell from the pictures, but the surface is very rough, almost as if the paint was "eaten off" the top.

Anyone know how I can stop this from spreading? And can anyone explain what is really happening?

I feel terrible... having only had this car for two years and to have it fade so bad on me... it'* almost as if I have neglected it somehow.

I believe thats the clear coat that is oxidizing?
I dont know of a way to reverse the damage short of taking it to a body shop, sorry.
Get a quote for a roof repair, it might not be too bad if they can acid wash it and re apply the clear coat?

have you ever waxed the car?

About a month ago, I did wax it... applied two coats of Turtle Wax (super hard shell car wax)... I did it since the top began to fade... I thought that it might help it from spreading, but it has gotten worse since.

Prior to that, I waxed it about two months after purchasing it two years ago. Those are the only times that I have waxed it though.

Anyone ever heard of Wet Sanding? I don't know much about it. Would something like that take care of it?

Clear coat is going south. The upper surfaces go first. Repainting is the best sollution and make sure the shop uses a good quality brand of paint. All of the Big three had difficulty with their clear coats when they were looking for non-solvent based paints to reduce emmisions from their paint lines.