you can go into display settings and change the background, or use any other picture for background, but i am not sure how you can stop the picture from still being available in the list of choices in the display settings..

If the Picture is in "My Pictures" Folder just delete it from there & it won't show in Backgrounds list.

Actually, if you merely clicked "set as background" then it is a temporary file in Internet Explorer.  The only way I am aware of deleting it is by selecting another picture from the internet and selecting that as your background.

If this is not the case try

C:\Windows\Web\Wallpaper

It may be located in that folder.  If it is there you can delete it with no problems.

Jay916,

If you set it as wallpaper from the context menu the file could be anywhere on your system. To locate it (and delete it) open Display Properties and look on the Desktop tab for the name of the image currently selected as wallpaper (call it wallfile). Select another image as wallpaper. The extension of the first image's file name will not be shown so to locate it go to Start|Search|All files and folders and look for wallfile.*. When the file is located, right-click it and select Delete.

Thank you all.  I tried clicking on another picture and setting it as a backround and it worked.  I found one I liked and I deleted the other one.  Thank you all again for the help!