here:
IconDeskUpdateInterval 1000
IconDeskGroups win_desktop ; fixed this line
IconDeskwin_desktopSize 32
IconDeskwin_desktopVisible true
IconDeskwin_desktopX 0
IconDeskwin_desktopY 0
IconDeskwin_desktopSpacingX 10
IconDeskwin_desktopSpacingY 10
IconDeskwin_desktopDirection right
IconDeskwin_desktopWrapDirection down
IconDeskwin_desktopWrapCount 20
IconDeskwin_desktopFont Verdana ; fixed this line
IconDeskwin_desktopFontSize 12
IconDeskwin_desktopFontBold false
IconDeskwin_desktopFontColor white
IconDeskwin_desktopTextSpacing 5

*IconDeskwin_desktopFolder C:\Windows\Desktop\Litestep\ ; fixed this line

That should do it :)