I can't solve the problem except to suggest you try the utility offered here;
I haven't tried it myself but I have used Remesh's site before for information and I am quite happy with it.
The utility will allow you to display a wallpaper at any x,y coordinate on the desktop. No doubt you will have to experiment with different positions of x and y if you decide to try it.
Other than that, have you tried uninstalling Powertoys Wallpaper changer and see if that corrects the problem?
If this is a new machine that came with Powertoys, what about asking the supplier to repair it under the warranty?
I use win xp media center edition with the Power Toys Wallpaper Changer add-on. The Changer has no setting to stretch or center wallpapers (just tile). Display properties in XP has settings for stretch or center or tile, but when I hit "center" and "OK" - nothing happens - I go back in and find "stretch" highlighted again. Any ideas? Stretching my pics results in some that are poor and heavily pixelated. I use 1024 X 768 resolution.