Windows XP Pro desktop wallpaper

I'm trying to change the desktop wallpaper. I right-click on the desktop,click Properties, the dialog box opens. When I click on the Desktop Tab, I get a Windows error message box which says "Run DLL as an App encountered a problem and needs to close", then get the same message for Dr Watson Postmortem Debugger (that sounds pretty ominous, doesn't it?).

I was able to change Themes and Settings. Screen saver seemed to have the same issue.

Rebooting doesn't help.
Any ideas on how I can get that to work?

Thanx, Jim E.