Cannot change desktop wallpaper

PakNik Did a great write-up today on pcproblems.wordpress.com
The first bit is quoted here:

You are unable to set your desktop wallpaper to a picture. You can access the Desktop settings in Display Properties, but the Background list is disabled. If you right-click a picture and select Set as Desktop Background, nothing happens.
This problem often occurs after a virus or spyware maliciously changes Windows security settings.
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