If you go to appearnece in desktop properties and click "Effects" There is someting there to get rid of the icon backgrounds.

Tried everything under effects and they are still there. Also i tried control panel/system/advanced/performance and unticked the "use drop shadows for icon labels on the desktop" but that dont work either

What specifically do you mean by icon background ?
Do you want to change the Wall Paper?

How to Change the Color, Size, and Font of Individual Window Elements

To change the font, size, or colors of individual Window elements, follow these steps:
1.Right-click an empty area of your desktop, and then click Properties.
2.Click the Appearance tab, and then click Advanced.
3.In the Item list or in the preview window, click the Window element that you want to change. You can select from any of the following
items:

3D Objects
Active Title Bar
Active Window Border
Application Background
Caption Buttons
Desktop
Icon
Icon Spacing (Horizontal)
Icon Spacing (Vertical)
Inactive Title Bar
Inactive Window Border
Menu
Message Box
Palette Title
Selected Items
ToolTip
Window

4.Do any of following to achieve the look that you want:

NOTE: Not all options for all Window elements are available. For example, the Font option appears dimmed and is unavailable for elements in the Item list that do not display text. •Under Item: •In the Size box, specify the size that you want to use for the item.•In the Color box, specify the color that you want to use for the item.•Under Font: •Click the font that you want to use for the item.•In the Size box, specify the font size.•In the Color box, specify the color that you want.•To apply a bold font, click B. To italicize the font, click I.A preview of your current settings is displayed in the preview window.

5.When you are finished making the changes that you want, click OK twice to save your settings.

•If you click Window in the Item box, and then modify the font color for that item, the automatic font color that is available in many programs is also modified. Any documents that use the automatic font color are affected if you change this setting. Many programs, including WordPad and Microsoft Word, use automatic as the default font color. Any new documents that you create in these programs use the new font color that you select for the Window item.

To use a different default font color in programs that use automatic as the default font color, you may be able to create a template that uses the font color that you want as the default font color, and then use that template instead of the default template. For information about how to do this, view the documentation that is included with the program, or contact the program manufacturer.•As you modify items, note their appearance in the preview window. Note that you must use the same font and size for the Active Title Bar and Inactive Title Bar items, and that bold or italic selections for either item are applied to both items. If you choose a desktop theme after you change fonts or colors, the fonts and colors for that desktop theme override your selections.

Hi Thanks for responses. All I want to do is remove the shadow background that appears on the icons. Its like the icons are highlighted but their not. I have tried all of these options already and cant get anything to get rid of it. You can see in the picture attched how it appears.

Thanks Phil

Try this:

Open System Properties in Control Panel, choose the Advanced tab, and click Settings in the Performance section. Turn on the Use drop shadows for icon labels on the desktop option, and click Ok.


Windows XP Common Issues > Remove icon border shadows on the desktop