That's a new behavior in Wallpaper, eh? It never happened before.
In wary 5.5, the Nathan Wallpaper utility is now zapping *.png's, and of course, no good deed going unpunished, it also erases your current background. So you end up with the default light grey background, and 0 Kb for your favorite *.png.
I understand *.png's generally take more space than *.jpg's, but please, that's a decision for the user to make, not the developer. To whoever last fiddled with the Nathan Wallpaper script: make a public confession, and perhaps you'll be pardoned!
![Wink ;)](./images/smilies/icon_wink.gif)
Moral of this story is: find and use an older version of "Nathan Wallpaper", not the current one. Older versions don't have this bug.
BFN.