Tested on Oct 9, 2007 using the "daily-live" [Gutsy] iso from Oct 9, and still 
get the error:
"Unable to start the settings manager 'gnome-settings-daemon'.
Without the GNOME settings manager running, some preferences may not take 
effect. This could indicate a problem with Bonobo, or a non-GNOME (e.g. KDE) 
settings manager may already be active and conflicting with the GNOME settings 
manager."
when trying to change the background.
After selecting "OK" the "Appearance Preferences" gui is displayed.

-- 
Unable to start the settings manager 'gnome-settings-daemon'.
https://bugs.launchpad.net/bugs/148291
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