To fix the problem with your "Wallpaper Glitch"... just recycle Litestep. The problem is that the module that occupies that space uses False Transparency which means it just takes a shot of the background image when Litestep loads and uses it for it's background. Just recycle litestep, it will take a shot of the new wall paper, and you are good to go. Simple as that.

For deskop icons, deskfolder.dll is a good module, or else you can just make litestep *Shortcut 's.. Although deskfolder.dll is more dynamic than just putting a simple *Shortcut. You may want to look into both of those for getting desktop icons.