Fantastic Short Stories

I second the Saunders and the Barthelme, for what it's worth. And there's a book called 'The Suicide Kit' from a few years back, whose author I have forgotten, which also fits the bill.

Also, maybe the short stories of Gene Wolfe?

Wholeheartedly second the short stories of Kelly Link. Fantastical, dreamlike, sensual, cruel and oddly matter-of-fact. Cool stuff. I enjoyed her first collection, "Stranger Things Happen" a lot more than the more recent "Magic For Beginners", but they're both worth reading.

Steven Millhauser's "The Knife Thrower" is another great collection of strange, ethereal, vaguely fantastical short stories that steadfastly resist any kind of genre classification. They're somewhat like Link's stories in that they come at you out of the fog and dissipate before you can really grab hold of them, but they're much drier and less humane. Millhauser trades in icy intellectual detachment, where Link is curious and playful.

And, of course, you've GOTTA read Angela Carter's amazing collection of reimagined fairy tales, "The Bloody Chamber". A short book of even shorter stories, this is one of my favorite books of ever, ever. With lots of exclamation points. Wild, subversive, sexy, smart and gorgeous.

Also:
Jorge Luis Borges - everything, but especially "Labyrinths" (= best book ever)
Stanislaw Lem - "The Cyberiad"
Anne Carson - "The Autobiography of Red" (a novel in verse, but hey, it's pretty short)
Italo Calvino - "Invisible Cities"
Robert Coover - "Stepmother" (another super short novel, bear with me)

The Autobiography of Red is awesome!