Desktop Icon Titles are Highlighted

Jeff, Because mine was 'fixed' merely by deleting my newly created Toolbars
and u say your Office toolbar is looking strange, delete it, You can always
recreate after u find the cause.

My desktop file(s) had to have been corrupt for the titles to zap right back
as they should be when I deleted the Toolbars. Try deleting desktop items
and creating fresh then if still not acceptable, move everything on your
desktop into a My document folder, Shutdown (not Reboot) then Defrag.

Get files larger than an icon, off your desktop too. Clean out Temps,
cookies, etc. All easy jobs and together they may be effective if the
methods suggested in this thread haven't been. If nothing else it will make
u 'feel' like you're fixing it.

http://www.annoyances.org/exec/forum/winxp/1142005626?s

has the solution for those of you who have tried everything and nothing
works...it is an issue with the "SMS Mirror Driver;" disable it under
Display Adapters in the Device Manager, reboot and you're back to just
text icon labels. You can then re-enable it and the icon labels are
still fine.

I solved the problem!

Take a look at Keith Miller's points again, sent by Ramesh:

Additional note, from Keith Miller:

Four things are required for transparent icon backgrounds:

1) 'System Properties' -> 'Advanced' tab -> Performance 'Settings' ->
'Visual Effects' tab:
"use drop shadows for icon labels..." must be checked

2) Right-click on Desktop -> 'Arrange Icons by' -> "Lock Web items..." must
be CLEARED

3) If you have any web content on your desktop, transparency won't work.

To check for web content: Display Properties > Desktop tab > Customize
Desktop button > Web tab >
make sure all checkboxes are clear.

4) Wallpaper must be an image file, not html.

[joem]

I stumbled across this thread whilst trying to solve this very same problem. If you have highlighted icons with nasty boxes of colour around them, check the format of your wallpaper image file.

For me, I had a PNG image file and was getting the colour block around my desktop icon text, but, I converted it to JPG and reapplied it, and voila, nice transparent effect appears.

This might help someone.