It usually works fine if choosing a saved file. Try enabling active desktop first, then setting the wallpaper.
Celeron 633 @ 1064 , Windows XP server,
Pentium 3 1000 @ 1100,Abit bx-133, 256 Mb Mushkin Rev.3 cas 2-2-2, ATI Radeon
AMD Thunderbird 1.4 @ 1.63 (24/7) IWILL KK266R , Corsairs pc 150 cl2, Leadtek GeForce 3 