The pictures that show up under display properties, desktop are located in
these folders:
C:\Documents and Settings\user name\My Documents\My Pictures
C:\WINDOWS\Web\Wallpaper
C:\Windows\Resources\Themes
Type in Start Run
"%userprofile%\Application Data\Microsoft\Internet Explorer"
Under My Computer scroll down to Shared Documents/Shared Pictures. If
Shared Pictures is listed, remove it.
TweakUI for XP: Unchecking "Lock Web Content" under Explorer to be added
to desktop disables the pictures from being listed.
http://www.microsoft.com/windowsxp/pro/downloads/powertoys.asp
Workarounds:
Create another folder (under your user profile), remove the pictures from My
Pictures that you don't want listed under Backgrounds and in the My Pictures
folder, create a shortcut to the new folder. Or create subfolders within My
Pictures.
Add Folders to the "Save As" Dialog (Places Bar) Line 117
http://www.kellys-korner-xp.com/xp_tweaks.htm
Disable Default Save As to My Pictures (Line 263)
http://www.kellys-korner-xp.com/xp_tweaks.htm
Add Folder to Start Menu to replace/re-route My Pictures (Line 2)
http://www.kellys-korner-xp.com/xp_tweaks.htm
To use the Regedit: Save the REG File to your hard disk. Double click it
and answer yes to the import prompt. REG files can be viewed in Notepad by
right clicking on the file and selecting Edit.
Note: In Shared Documents there is "Shared Music" and "Shared Pictures".
In "Shared Pictures" there is a personal folder of pictures called "My
Pictures" and another folder called "Sample Pictures". Sample Pictures has
four more Microsoft wallpaper images - except that these aren't on the list
in Display Properties.
So take the "My Pictures" folder out of Shared Documents, and restart the
computer.