Some people say that when they have VNC (Virtual Network Computing) installed on their Win7 machine that removes the wallpaper when they log in (to remove latency issues). After disconnecting, their wall paper works.
Also try this if the top solution does not work!
Type edit power plan in the Start Search box, and then click Edit power plan.
Click Change advanced power settings.
Select Available in Desktop background settings->Slide show.
That's it you should see the background changing.
I hope this helps!
Brett M,
Windows Outreach Team