is it possible to run litestep using the explorer desktop instead of desktop2.dll?

Yes.

Yeah, I think you can size the taskbar to like 3-4 pixels.
But all the hotkeys will be stolen.

It's possible, but it's beyond me why people want do that. Run LS on top of Explorer, that is. Make up your mind and use one or the other, not both. And for those who just want to "enhance" Explorer, one would think that DesktopX or something would be the way to go.

yes, it's possible, I think. you could probably just install litestep, don't set it as the shell, and configure a theme that DOES NOT USE A DESKTOP MODULE. if you forget this, it WILL cause problems. then just configure the theme. you may also want to include LSNoShellWarning (though I'm not sure if it's still included in the latest builds) so you don't get a warning when you start litestep.exe

http://www.shell-shocked.org/article.php?id=148