Jagged Wallpaper

[MsWalldo]

I'm having problems with my desktop wallpaper. My wallpaper will load and look fine. Then I see a blank screen and the wallpaper comes back with little jagged edges. It's just something that started all of a sudden. I have AveDesk and WindowBlinds run on startup. I shut both down, but it didn't make a difference. I have the "Apply any Wallpaper supplied" unchecked in WindowBlinds. I recently DL Miranda IM, didn't care for it and deleted it. The wallpaper problem started somewhere after DL'ing Miranda. Below is a partial SS of my desktop. You can see where the arms and all around the image is jagged, where before it wasn't.
I don't use any wallpaper programs. I did try the "no wallpaper" thing and then chose different wallpapers and still had the same problem. The wallpapers aren't corrupt, I opened them up in different programs such as Paint Shop Pro, etc. and they looked great. I've done a registry clean as well. I've tried different sized and different types of wallpaper such as bmp and jpgs...same problem. I've also done several virus scans, too, and I'm doing one right now after shutting down "System Restore" option.
Any help is greatly appreciated.
Thank you, Mary

SCREENSHOT

[caperjack]

could be video drive ,have you check to make sure you have the latest drivers for you video card .

[MsWalldo]

The drives are fine.
Quote from my original post "My wallpaper will load and look fine. Then I see a blank screen and the wallpaper comes back with little jagged edges".

[Trace--]

if the wallpaper resolution is smaller than the desktop resolution, it will look a bit pixelized. Only thing i can think of

[StanL]

I know this is an ancient thread, but I have exactly the same problem as MsWalldo. There's no problem with the image resolution (images look fine in PS etc), but the wallpaper goes jagged when the full windows (XP) desktop screen loads (after going blank, just as MsWalldo said). The windows Icons also have an annoying border they didn't have before. Like with MsWalldo, this problem started suddenly. If anyone has any ideas I'd really appreciate the help - maybe after all this time a solution has been found?
Thanks