Using vlc player
The first thing you need to do is install VLC which comes for free and can be downloaded easily from the internet. Then go to “Tools –> Preferences “. Once you go there you will have a pop-up window with a lot of options.
In the left bar click on “Video” and in the “Output” section select “Direct Video Output”. This will enable your video wallpaper option.
Once you are done with it, restart your player. Then play your favourite video or movie in VLC. While your video is on the roll go to “Video” option on the top of the player and select “DirectX Wallpaper”.
This finishes your task as the video has already been transferred to your wallpaper. Then you need to minimize your player as normally the video stops once you close your player. For some cases the video may even play but you need to check that out personally.
Using Dream scene veiwer
First, you need to have Aero enabled. You’ll know Aero is enabled if you’re able to preview windows in your taskbar, use Aero Peek, or see the animation effects of windows minimizing. If you think Aero isn’t enabled, open the Start menu, and type in Aero.
Click on Find and fix problems with transparency and other visual effects and go through the wizard. The wizard will determine whether your computer is capable of having Aero on.
If you’re on 32-bit Windows 7, download the Windows 7 Dream scene patch here
If you’re on 64-bit Windows 7, download this patch and follow the instructions in Important Readme.txt
Run the patch and let it do it’s thing. When it’s finished, explorer.exe will restart.
If it doesn’t restart, press Ctrl + Alt + Delete and click on Task Manager. Right click on explorer.exe and click on End Task. Then click on File, New Task, type in explorer.exe and press OK.
Before you start adding videos, you need to make sure that your videos are in .wmv or .mpg format. If they are not one of those formats, you can download a free video converter here.
Enjoy the dreamscenes from http://www.dreamscene.org/gallery.php