I have the same problem and posted the thread below on 3/31 and no one
responded. As you will notice my post contains screenshots showing the
picture thumbnails missing. System restore is diabled on my PC so it is not
an option. Any ideas for me?

I know there have been many posts about this issue and I have followed all of
the threads and none of them have fixed my problem. I am running Business
Edition and installed SP1 on 3/26 and the problem started yesterday 3/30. I
have looked in the registry for the entries that appear to cause the problem
and they are not there. I also ran the wallpaper_enable.reg file and I do not
see the entries then either. This computer is on a domain so maybe the
policies are not the same in the registry? When I open the desktop background
dialog the thumbnails for the wallpapers are not shown. Another thing that
started happening at the same time is when I look in my, my pictures folder I
do not see the thumbnails in there. I can see the file names and I can open
the pictures but I cannot see the thumbnails unless I change the view. After
I change the view I can change it to any other view and see them ok. If I
hover over where the thumbnails should be it turns blue so I know it is
there. I am posting a couple of links below that are screenshots of what I
see. Thanks in advance for any help.

[url]http://sportcompactcentral.com/wallpaper.jpg[/url]
[url]http://sportcompactcentral.com/pictures.jpg[/url]


"Bob" wrote:
[color=blue]
>
> Try System Restore in Safe Mode.
> -------
> *Report back, please*
> [When responding to posts, please include the post(s) you are replying to so
> that others may learn and benefit from the issue]
>
> [How to ask a question]
> [url]http://support.microsoft.com/kb/555375[/url]
>
> "Catti" <Catti@discussions.microsoft.com> wrote in message
> news:EE702C3B-4DCF-4492-9659-11280858472B@microsoft.com...[color=green]
> > Display settings were the first thing I checked, they're at 32-bit. I even
> > tried deleting the Pictures folder where I was storing the pics I was
> > using
> > for wallpaper (under my user account) and recreating it, then copying the
> > pics back into the folder. Now I can't even view them as thumbnails in
> > Windows Explorer, I just get clear box icons. I can still view picture
> > thumbnails in other folders in Win Explorer. I still get the messed-up
> > icons
> > when I try to access the Windows desktop pics as well.
> >
> > I tried a System Restore - "Unspecified error" and it failed. Even when I
> > tried to undo, Unspecified error again. The only other thing I can think
> > of
> > is nuke and pave, reinstall the OS, but since it's taken me nearly a month
> > to
> > tweak this crappy OS so I can use it for my work.
> >
> > I'm going home to my mac OSX now. It hasn't crashed or bugged once since I
> > installed it in 2005. And that's the OS that M$ tried (and failed
> > miserably)
> > to copy with Vista. While I'm on there I'll be signing that petition
> > online
> > asking MS to keep supporting XP. My company sure won't be adopting Vista
> > any
> > time soon, thanks to the results of my testing so far.
> >
> > Thanks anyway...
> >
> > "Jane C" wrote:
> >[color=darkred]
> >> Hello Catti,
> >>
> >> Check that you have the colour depth set to 32 bit via Personalization,
> >> Display Settings.[/color]
> >[/color]
>
>[/color]