Hmm, I tried a JPEG and yes it works :)  PNG doesn't however - looks like it uses the same method as FW1.00.

The resolution still has issues, causing the icons to look weird.  Hmm, I think it's because of the uncompressed image being stored in memory or something, as using a large file, opposed to resolution causes the PSP to not load the background at all.


As predicted, shoving the JPG image in multiples of 6176 works, but most pictures, even low res take up more than 6176 bytes...
Hmm, if JPEG headers have a start pointer, maybe it's possible to load multiple images into one file without the 6176 byte restriction.