JSI Tip 7841. Your Windows XP desktop icons and labels do not display with a transparent background or drop shadow?

The background of your desktop icons and labels appear as the background color that is set in the Advanced dialog of the Appearance tab in Display Properties.

If you set a Web page as the Active Desktop, or add a background or desktop item that uses Active Desktop, or use a transparent or animated GIF, or you enable Lock Web Items on Desktop can all cause this behavior.

To workaround this issue, DO NOT use desktop content that enables Active Desktop.