Windows DreamScene is a utility that allows videos to be used as desktop wallpapers. It is one of the Windows Vista Ultimate Extras.
If you are running Vista Ultimate, you can benefit from this great additional feature for free.
IF ONLY YOU ARE RUNNING VISTA ULTIMATE...
But now, you can make it with your Windows XP..

Vigam, Dreamscene for Windows XP.
Vigam is Desktop background player that will play videos as desktop wallpapers just like Vista did it.
But with Vigam you can play it too in your Windows XP.

Vigam is a cool video audio player that play video as wallpaper desktop background and wallpaper changer will auto-active while you play mp3. Vigam also has Integrated Shutdown-timer, "Now playing" on Yahoo Messenger status and Y!M chatroom. Vigam is freeware and compatible for all windows versions.