Computer Problem [Display Settings]

Windows XP user here, all security/patchs are updated
When I right click the desktop and go to properties, all tabs will work except the wallpaper tab. It will hang for a number of minutes and then show me a list of all the pictures in the "My pictures" folder, which consists of over 11600 pictures in over 60 folders...:shakehead

I have no idea how it came to be what it is, or how to change the directory back to default. My desktop computer still retained its default directory referencing sample wallpapers included with XP and its been used and abused for the last 7 years.

I have opened regedit, and under WallPaperDir in
HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows\CurrentVersion

reads: %SystemRoot%\Web\Wallpaper

When I opened that directory, it took me to the default directory where it was supposed to take me, but obviously the display settings is not using this Directory.

Any idea what went wrong?

I use this program instead of windows wallpaper manager
http://www.wallpaperchanger.de/
it is free

I would suggest something similar to Lynx_Arc's solution-- I use Ultramon, which also provides support for the multi monitor setup I have.