Thanks for the reply DrWorm.

I think I found out what happend.

When I used the theme installer (LSTS)(XP), I linked to a png file by mistake. When I selected the theme LSTS saved this to my step.rc:
rcStep ""; Added by LSTS
dirTheme "$LitestepDir$themes\simplicity"; Added by LSTS
include "$dirTheme$$rcStep$" ; Added by LSTS

-side question, shouldn't there be a trailing slash (dirTheme "$LitestepDir$themes\simplicity\"; Added by LSTS) ?

(the first line should be: rcStep "step.rc"; Added by LSTS )

I discovered that by comparing a fresh install to the borked one.

That might be one for the rest of the newbs: If you break your current installation of LiteStep, kill litestep.exe in taskmanager, rename the install dir, reinstall and compare. Works great for learning. I didn't even have to reboot, just restart c:\litestep\litestep.exe.

Nothing but good wholesome sweetness.

Thanks again and keep up the good work.

-Wix