|Apply makes the change now. Okay makes the change and closes the window, so it doesn't matter if you use Apply then Okay.|
When you say you restored from scratch, what exactly do you mean? Did you use a Windows disc, delete your old partition, and reinstall Windows OR did you use a recovery partition located on your hard drive OR did you revert to a disk image you saved earlier on? I ask because people often forget to install device drivers after reinstalling Windows, so it may be related, although what you described is weird to me.
If it's a picture you're trying to set, you can also go to that file in Windows Explorer, Preview it, then right-click and Set as Desktop.
Apologies if I don't respond to your reply immediately. I don't check this site daily, but you're welcome to PM me as a reminder.