Unable to change Wallpaper in Windows XP

To fix this simply do the following –

Click on Start.
Click Run.

Type – regedit and press Enter {This will open The Registry Editor}

Once it is open, navigate to the following –

Ø  HKEY_CURRENT_USER\Software\Microsoft\Windows\CurrentVersion\Policies\System

And

Ø  HKEY_LOCAL_MACHINE\Software\Microsoft\Windows\CurrentVersion\Policies\System

Delete the values "Wallpaper" and "WallPaperStyle" in the right-pane.

{Note – Both the Values mentioned needs to be deleted from both the paths mentioned above, if they are present}

Close Regedit.exe

Restart the system.

The issue is resolved.

The option is no more Greyed Out and you can now easily change wallpapers.