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Is it still plugged in to the computer? If so, it'll show the battery icon. It also only shows it when locked. (If you didn't know. I didn't when I first did it.) Unless you're talking about a different kind of wallpaper, that I don't know about. If so, sorry!
 
Yeah, that's what happens. It's more of an "unlock screen background." I'm not sure if there's ways to change the background on a jailbroken Touch, as I'm new to it. Somebody else would have to answer that.
 
That's totally normal. When you choose your wallpaper under "Settings" that background is only supposed to show up during the "Slide to Unlock" screen and when someone is calling you (if you have an iPhone and haven't assigned a picture to the contact).

The only way to apply that background to your main menu is with the "Summerboard" application that you can download through Installer. I've seen quite a few people having trouble customizing their iPod touches with Summerboard when running 1.1.4 though but I got it to work.
 
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