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We can check the registry key since you're running home edition.
Please logon as Administrator, Click Start, input regedit in the search box, press Enter to open the Registry Editor.
Navigate to: HKEY_CURRENT_USER\Control Panel\Desktop\
On the right pane, check the WallpaperStyle value:
4,5,1 - Center
2 - Stretch
6 - Fit
Here's a screenshot of my desktop registry setting as your reference: http://b3xflg.blu.livefilestore.com/y1p8LEa5_LmjvGRyMpx-0RotkdAFX0MDOrA14gfZH7lq8iJJjmlvTGDutwIyEQ2ETxoHqUOIHhrHUn1vDH0UeD89rgcvTt6fNfE/background%20.JPG?psid=1
It's an OEM vesion Windows 7, right? If it still doesn't work, I recommend you contact the HP support for the further research as well.
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