I had the same problem and i couldn't set the wallpapers even with
keyboard. The wallpaper changes. I can see the new wallpaper at startup.
But after startup, only background is visible. No wallpaper. I updated
gnome-desktop-data and libgnome-desktop-2. Now I can select wallpaper
with mouse. But has no effect.

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gnome-appearance-properties causes CPU spike in Hardy
https://bugs.launchpad.net/bugs/236778
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