I found the solution, I had to go through 25 websites before I found one that helped me, this one finally did:
Fedora 17 has you put your
something.desktop file in a different place:
Login as root and place your something.desktop file here:
I'll walk you through exactly what I did so you can get it working:
Login as root and make the following file called engauge.desktop here:
Edit that file and put exactly these lines in there:
[Desktop Action setAsWallpaper]
Name=Use As Wallpaper
Exec=dcop kdesktop KBackgroundIface setWallpaper %U 6
Notice two new lines that are important, the
Type=Service and the
ServiceTypes line. Those are not optional.
Save the file and make sure it has 755 permissions. Open up konqueror in file mode and right click on a .jpg or other image, go to Actions menu and you will see "Use As Wallpaper" item will appear.