I have gottenvarious reports of users unable to get Desktop Pictures to work, even immediately after a Mac OS 8 install with no third party extensions added. At least in some cases, it appears that this is due to an improper placing of the file by the Installer. It needs to be in your Control Panels folder to work.
However, in a couple of cases, readers (such as John Barnett) are reporting that they get an error message (when trying to launch Desktop Pictures) saying that the file needs to be placed in the Control Panels folder - even though the file is already located there. I have not seen a solution to this glitch reported as yet.
Meanwhile, Apple has a Tech Info File on using Desktop Pictures that has other information on avoiding trouble with this file.
P.S. I know Desktop Pictures works fine for most users. I am not implying that the above problems affect every one.
Update: George Doughton reminds me that, as previously reported here, Conflict Catcher 3.x (specifically the extension Conflict Catcher uses to add the CC menu to the menu bar) is known to cause problems with Desktop Pictures. I am assuming that this is not the explanation for all of the problems reported here today. (Thanks also Dave Camp.)
Update: Readers suggest familiar fixes may work here. John Selvia reports that deleting Desktop Pictures Preferences and restarting will solve this problem. John Cytron suggests rebuilding the desktop. Several readers report that AppleScript extensions need to be installed for changes to be made to the Desktop Pictures settings (as also noted previously on MacFixIt).