You'd have to do something with the X cursor. And you'd have to rerun the script to get it to find new images, as the shell is interpreting the asterisk and specifying the exact files there at the moment it's run. You might be able to get xv to interpret the asterisk or just hand it the directory, the latter being more likely (tho I haven't tried it).

And there's no reason to autologin. (Autologin is evil.) Just have X start in a startup script with the xv app as its shell.