Open the old Control Panel.
Set View at the top of the old Control Panel to large icons.
Open the 'Ease of Access Center' applet.
Open the 'Make it easier to focus on tasks' link.
If this setting is enabled, disable it and click Apply - 'Remove background image (where available)'.
Then go back into the Personalization - Background settings in the settings app, are you then able to add a background image to your Desktop.