I thought this bug was squashed a few versions back, but it looks like it resurfaced (at least in 3.0.3 it was back): sometimes the background color will bleed through the desktop image on the very edge of the screen. As far as I can tell, when an image gets stretched larger to touch an edge of the desktop, the background color bleeds through the pixels touching that edge.

Can you look at your source bitmap file and see if the problem is in the .bmp file itself?

It's here: C:\Documents and Settings\**your name**\Application Data\Binary Fortress Software\DisplayFusion\CustomWallpaper.bmp

Yes it's in the bitmap. I usually go out of my way to fix it in a graphics program if it's something that'll last longer than a few minutes in a desktop slideshow.