I know that ATI All in Wonder Cards (the ones with TV and Capture Abilities) had a setting called Video Desktop, which was cool as Hell,and similar to what He is asking about. It made the Video act as a wallpaper, and you could watch TV and Media Files on the Desktop. I don't know how it was able to do that. I think it harnessed the "Overlay" features of the Video Drivers.
Here's a little blurb off, ATIs' webpage.
If another application is already running which makes use of overlay then the overlay feature of the graphics card will not be available for use by the ATI Video Player.
Common types of applications which may use or prevent access to overlay are:
* Video conferencing software
* DVD playback software (such as the ATI DVD Player)
* Video editing software
Please close the application using overlay and then re-launch the ATI Video Player. In some instances Windows may need to be re-started prior to attempting to re-launch the ATI Video Player in order to ensure that the overlay becomes available for use. http://tinyurl.com/6bt29