To make your desktop icons appear transparent in Windows XP, do the following:

• Go to Control Panel
• Then Go to System (If there are categories in control panel, you can go to System after selecting  Performance and Maintenance)
• Go to Advanced Tab and select Performance settings.
• Now under the Visual Effects Tab, check “Use drop shadows for icon labels on the Desktop”
• You will see transparent icons on your desktop this way.

See more Windows Tips Tricks Modifications Customizations Regsitry Hacks and lots more interesting stuff here.