AVS Overlay doesn't work with desktop wallpaper

I have happily been using the excellent desktop overlay AVS feature with Winamp 5.03a, up until recently, when it decided to no longer work if I also have a desktop wallpaper. If I remove the wallpaper, it works just fine. However before it would work if I had a desktop wallpaper. I am running Windows XP and have Active Desktop disabled. I've searched through the posts in this forum, but found no guidance on this particular problem, therefore any assistance would be gratefully appreciated.

Have you got "set desktop to color" enabled?

Yeah, overlay mode and set desktop to color are both ticked

Try clicking the Default button...

No luck? Do you have any desktop utilities/enhancers (nView, Samurize, LiteStep, WinSpace, yzshadow, etc)? What is your current desktop color depth (Control Panel > Display > Settings tab)? Does this happen with a particular wall paper?

Tried default button, sadly no luck, I'm at 32 bit color, and it happens with any wallpaper. I did have nView running but I disabled it, however it still doesn't work.

This maybe (is it set to Monitor and TV?)...

-or-
Have you tried shutting down Windows and rebooting the computer.

Tried rebooting, checked it's not set to simulate a monitor and a TV, read all the threads regarding this kinda problem... I'm baffled.

Moved to AVS TS for hopefully a more detailed explaination

a description of your config would be helpful
service pack #
graphics card / driver version
and stuff like that
btw i have a wallpaper that is partially filled with the overlay color.
looks like my icons are stuck to boards hovering above the AVS preset 🙂

Okay, I am running:
Windows XP Home Service Pack 1
Pentium 4 2.4 GHz
256 RAM
NVidia GeForce 4 MX 440 with AGP8X
Driver version: 5.2.1.6

anything else you need to know, just ask

hmm all regular stuff nothing exotic so far...

do you use the nvidia reference driver or the driver from your graphics card's manufacturer?
if you use the manufacturer's driver, the brand of your graphics card would also be of interest 🙂

btw does your desktop go black (or any other color 🙂) when you activate overlay mode&set desktop to color?

I'm using the NVidia driver, and the desktop stays the same when I activate overlay and set the desktop to colour.

The weird thing is, if I right click on desktop > properties > settings tab, the visualization appears as the background to the little screen showing what your desktop looks like, but it won't actually do that on my real desktop 🙁

Did you try reinstalling your graphics card driver?

Reinstalled drivers, still no luck... the milkdrop desktop overlay feature works okay, I can't understand why the AVS doesn't.

Turn off active desktop. Read the FAQ.

Active desktop is turned off, unfortunately still no overlay mode...