There are four settings that must be configured for transparent icon background to work properly.
1. Go to Control Panel / System / Advanced Tab / Performance Section / Settings Button / Visual Effects Tab. Make sure that "use drop shadows for icon labels on the desktop" is checked.
2. Right click the Desktop and select Arrange Icons by and make sure that "Lock Web items on desktop" is NOT checked.
3. Make sure that there is no live web content on the desktop. Right click the desktop and select Properties / Desktop Tab / Customize Desktop Button / Web Tab. Make sure that all checkboxes are cleared.
4. If you are using a desktop wallpaper, make sure that it is an image file (.jpg, .bmp, etc) and not an HTML (.htm) file.