A customer of mine told me that since we upgaded his Citrix Server to Windows Server 2003 his users was not able set a wallpaper anymore. I know… wallpapers slow down performance in terminal sessions 🙂
Apparently Windows Server 2003 has a default policy that prevents changing the desktop wallpaper. You can find
it under Computer Configuration -> Administrative Templates -> Windows Components -> Terminal Services. Here look for the policy called “Enforce Removal of Remove Desktop Wallpaper“. Set this policy to disabled. If this is domain environment make sure that you set this policy where it will apply to your terminal server (e.g. OU where TS computer account is in).