I've found this info about using a gif image with Windows 7:
"On your PC's hard drive, the default background images are stored in subfolders of the %WinDir%\Web\Wallpaper folder. The name of each subfolder sets the name of the category that appears when you are dealing with Windows 7 desktop backgrounds.
You can create background images for Windows wallpaper as well. You must create these background images as .bmp, .gif, .jpg, .jpeg, .dib, or .png files. If you add images in these formats to name subfolders of the %WinDir%\Web\Wallpaper folder, the pictures is going to be available as part of the Windows wallpaper and organized to the named sets based on the subfolder names. If you don't have access to that folder, or if you would prefer to not make changes to that folder, you can also employ pictures from your Pictures Library or specify a folder elsewhere."
I haven't installed Windows 7 yet (I'm still using Vista). Can any try something so simple and tell? You can use the image of my first post.