Two displays - how about two wallpapers?
I got tired of seeing my wallpaper on my second monitor all skewed on my 1024 wide by 1280 tall vertical secondary display so I decided to do a little research and see if anyone had a good way to put a different wallpaper on each display. I think I hit gold!
Customize your XP desktop by going to your display properties (control panel or right-click your desktop and select properties). Select the Desktop tab and click on the Customize Desktop... button. Select the Web tab and add the images you want on your desktop. Hit OK and get out of the properties boxes.
On your desktop, you should have the images you selected. You can drag these around (including a second desktop), resize them, do whatever you need... When you're done, you can go back and lock the desktop items from the Web tab you added the images on.
I am a laptop user and drag my laptop around with me all day so I'm constantly turning off my secondary monitor and hooking my laptop up to an analog projector with different display settings than my digital external on my desk... My point being, the solution I found needs to handle a lot of display switching to work well for me. I've found that it's not perfect but it works quite well. I don't lock my desktop items so that I can easily slide the images around when my display gets messed up but I've been pretty happy with this solution.