That is strange, it may be the very tall bit that's causing it to be upset as trying some big images here (but wider than tall) works ok.
Unfortunately we were not aware of the issue hence not resolving it for 1.7.
Instead of reinstalling, you could instead just goto this location in the registry :
HKEY_CURRENT_USER\Software\Stardock\Start8\Start8.ini\Start8 and delete the BackgroundImage key. This should let you open the config on that page again.