With the release of Windows DreamScenes, Microsoft has made animated wallpapers on Windows a practical reality. Windows DreamScenes enables users to play video as their desktop background which, when done correctly can provide spectacular results.
Windows DreamScenes, available only on Windows Vista Ultimate, makes full use of the new DWM's video acceleration to deliver high definition backgrounds that won't slow your computer to a crawl. The caveat is that the video driver makers need to make sure their drivers are up to snuff which, in some cases, they are not yet. But that is a temporary issue.
Stardock worked with Microsoft on the DreamScenes projects and is responsible for some of the animated wallpapers that will come with the final release of Windows DreamScene as well as producing tools and enhancements that extend the functionality of the animated wallpaper feature. The best known tool is Stardock DeskScapes. It's ones of the new programs that makes up Stardock's popular Object Desktop suite of desktop enhancement utilities.
The two most anticipated features of Stardock DeskScapes has been the promise of animated wallpapers that can change based on triggered events (time of day, weather, etc.) as well as dynamic animated wallpapers (wallpapers that are generated on the fly as opposed to looping video).
Ironically, what has probably helped make DeskScapes so popular is that most people creating animated wallpapers choose its format .DREAM instead of releasing their work at .MPEG or .WMV. The reason? .DREAM files support author information that is displayed in the Desktop Background dialog (including links to the author's website). Without this, the hard work that artists put in creating these wonderful animated wallpapers would done anonymously.
Dynamic Dreams Become a Reality
In early March 2007, Stardock released DeskScapes 1.01 into beta for Object Desktop users. It includes two dynamic animated wallpapers to show what is possible. These dynamic animated wallpapers are called Dynamic Dreams.
The first Dynamic Dream is a floating, bouncing, rotating cube with the Stardock logo on each side. This is a sample one that will also be included in the upcoming DreamMaker 1.01 SDK to allow others to create their own Dynamic Dreams. Dynamic Dreams use DeskScapes to do much of the work. They're not like screen savers which are essentially EXEs renamed. Dynamic Dreams are designed specifically to be animated wallpapers to use as little CPU and resources as possible while delivering stunning visuals. DeskScapes also provides support for configuration and performance settings.
Stardock's mid-term plan is to also release an editor to make it easier to create Dynamic Dreams that are very easy to create that fall into certain common templates. This way, artists can concentrate on making visually impressive Dynamic Dreams without having to worry about coding or scripting.
Dynamic Dream: Stardock Cube

Stardock Cube floats gently around the screen on a reflective surface
Dynamic Dreams use very little CPU. Their performance is tied to your video card. If your video card is poor, then Dynamic Dreams will perform poorly too visually. Think of them like a video game. If you're running at 1920x1200 on your desktop, ask yourself if you usually run your video games at 1920x1200 with all the quality options on. But fear not, DeskScapes provides options to control the experience.

Performance Settings for DeskScapes 1.01
My ThinkPad T60 laptop is a pretty decent laptop. But the running at 1400x1050 is taxing on it. It's not like I could run Company of Heroes with at that resolution with 4X animation and expect to get 60fps. So on my laptop, at maximum rating, I'm only using 3% CPU but the cube moves at less than 30fps and windows move slowly because the DWM is being taxed. In other words, it slows down my Windows experience which is unacceptable. So I try lowering the performance to regular quality.

Same cube at "Regular quality"
I can't actually tell any quality difference between the two versions. But the performance is much better. Now the cube moves smoothly. But windows move with a bit of a lag because the DWM is still taxed. For me, I won't tolerate any degradation in performance for eye candy. So I'm going to turn down the performance all the way to best performance.

Same cube at best performance setting but minimum quality
At this setting, it's perfect. But I can tell the cube doesn't look quite as good now. It's not significant but it's there. I could use some beefy machine for this demo but the point here is to use the lowest common denominator. If your video card rating is a 3.0, you probably shouldn't be running Aero let alone animated wallpapers. The point here is to give users a real-world, worst case scenario.
Incidentally, if I run my laptop at 1280x1024 I can run at near the highest quality without any affect. It's just that at 1400x1050 the video card is either not optimized for 3D at that resolution or it's where video memory starts to run out. But a well designed Dynamic Dream will provide its own options as well and the Stardock cube is no exception:

Dynamic Dreams can have their own configuration
If I shrink the cube a little and slow it down, it performs better. The other guys here are laughing at me for even running this stuff on a business laptop but again, I just want to stress that this stuff runs pretty well even on lower end hardware if you set it up right.
Dynamic Dream: Desktop Earth
The second Dynamic Dream released is called Desktop Earth. This is available to Object Desktop users for free but it will also be released as a premium Dynamic Dream to users who don't have Object Desktop (it took far too long to develop to give away entirely).

Desktop Earth Dynamic Dream
Desktop Earth looks at the time of day and time of year and lights the Earth and textures it appropriately. It's March 2007 so you can see snow and such down in Michigan (or as we say to prospective employees -- lies! Michigan never has snow! It's warm!). As Spring arrives, you will see it gradually changing to being greener as the snow goes north.
Since I'm in the Eastern Time zone, it automatically defaults to centering there. If I choose to not have the globe rotate, it will lock overhead and over the course of the day, the shadow of night will slowly creep in until you see the lights come on.

Because I'm boring, I don't even have it rotating on my screen. I just enjoy watching the day pass gradually from above the earth.
By the time I go to bed my desktop looks like this:

The change is extremely gradual -- rendered in real time.
Now if I choose to have the globe spinning, I can set how fast it rotates so that I can see the whole world. The lighting of the world is still based on the time of day and time of year. But instead of looking over one part of the world, your desktop is orbiting the earth.

The earth at around 1:57pm EST in March 2007.
The quality settings really matter on this one because the Earth texture is extremely high resolution. We wanted something that would look good even at 2500x1600 type resolutions. But if you're running at a lower resolution, there's no need to use such a huge texture.

Even at the lowest settings, it looks really good and performs well at the highest resolution with less than 1% CPU use.
Availability
You can get this right now if you have Windows Vista Ultimate Edition and Windows DreamScenes installed IF you have Object Desktop. Stardock is releasing DeskScapes 1.01 first on Object Desktop and later to the general public. The Desktop Earth Dynamic Dream is free for Object Desktop users and is part of the content download.

When you buy Object Desktop you get Stardock Central which makes it easy to download and manage the programs that come with Object Desktop such as DeskScapes.
DeskScapes 1.01 should be available to the general public by the end of March at http://dream.wincustomize.com and on its home page https://www.stardock.com/products/deskscapes
If you have any questions, ask here, we're around. 
DeskScapes 1.01
Requires: Windows Vista Ultimate, Windows DreamScenes (and Stardock Object Desktop to get it early)