Move the "return false" from inside the setTimeout to the last line of the submit event handler. Additionally, there is one additional closing bracket that needs to be removed
Code:
$("form").submit(function(e){
setTimeout(function (){
$.fancybox({
'href' : '#loading-wait',
'width' : 650,
'height' : 350,
'autoScale' : false,
'transitionIn' : 'none',
'transitionOut' : 'none',
'scrolling' : 'no',
'type' : 'inline',
'showCloseButton' : false,
'hideOnOverlayClick' : false,
'hideOnContentClick' : false
})
}, 5000 );
return false;
});