Haven't had an image on desktop in years - not even icons - but now that I tried, it seems that XP will accept only .bmp! I seem to remember W2K used to accept .jpg... or were they converted behind the scenes?
I know that bmp is Microsoft's favorite format because it's not compressed (one of the reasons the HW manufacturers have always loved Windowses - they always needed more horsepower and storage). But what was the Active Desktop... a web page, right? And what were the webpage formats all about? JPG, GIF, PNG, right?
So, what gives? The file selector in the desktop properties dialog won't show any file but .bmp, period.
XP SP1, using bbLean/TotalCmd/Launchy instead of WinExp.