If you're running Litestep as the shell for only the current user you need a VERY specific set of registry entries set or you will get this behavior. Omar's Litestep installer should do the trick, but I've heard of some problems with it, so I'll post the entries here:

Windows Registry Editor Version 5.00

[HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\IniFileMapping\system.ini\boot]
"shell"="USR:Software\Microsoft\Windows NT\CurrentVersion\Winlogon"

[HKEY_CURRENT_USER\SOFTWARE\Microsoft\Windows NT\CurrentVersion\Winlogon]
"shell"="C:\Litestep\Litestep.exe"

[HKEY_CURRENT_USER\SOFTWARE\Microsoft\Windows\CurrentVersion\Explorer]
"DesktopProcess"=dword:00000001

[HKEY_CURRENT_USER\SOFTWARE\Microsoft\Windows\CurrentVersion\Explorer\Advanced]
"DesktopProcess"=dword:00000001

[HKEY_LOCAL_MACHINE\SOFTWARE\Microsoft\Windows NT\CurrentVersion\Winlogon]
"shell"=-


Naturally make sure all the paths are correct before using that. You can copy and paste it into a text file, save it as a .reg, and run it to add those entries. If you don't have administrative access to your registry there could be problems though.