This drove me nuts for a few minutes trying to find the location of the Windows 7 wallpaper as I was trying to migrate a profile to a new user and needed to copy the wallpaper as well.
The path, in Windows 7, is:
C:UsersUSERNAMEAppDataRoamingMicrosoftWindowsThemesTranscodedWallpaper.jpg
Nuts, huh. Did anyone notice?