Try going into WindowBlinds configuration panel > Basic Settings > deselect the "Apply any wallpaper supplied" > click the "Apply Changes" link on left-side of configuration panel.
Make sure WindowBlinds in unloaded (either via the configuration panel, or the WB system tray icon context menu) > right-click desktop > Properties > Themes tab > select and apply "Windows XP" from the Theme list.
Reboot the computer and then try to apply a skin from the WindowBlinds configuration panel.
If this fails, try to set your display resolution to a lower setting and then apply a skin. If this works, then there may be an incompatibiliy between WB and your graphics adapter and/or driver in regards to the per-pixel blending support.
Hopefully Neil will drop back by as he is the developer.