Is it not possible anymore? I remember using 640x480 images as map background back in the good days. Tried it now and it won't let me for some reason (.png .jpg. bmp).
It should still work. Probably the standard file selection bug caused by an erroneous translation file. Switch to the original English translation and try again.
Okay, looks like it only loads from the default backgrounds directory. I was using a custom directory placed in gfx before as I didn't think it would be a problem.