Vista desktop background won't fit screen, extends above and below

I'm trying to set a photo from my own pictures as my desktop background. In
Windows XP, when I have done this in the past, I tell it to center the
picture and the picture appears as my desktop background at its normal size.
When I set the same photo as my desktop background in Windows Vista, Vista
magnifies the photo so that it extends above the screen (thus you can only
see part of the picture) and looks very grainy. I've tried centering, fitting
to screen (it doesn't fit to the screen, either!) and tiling, and nothing
works. How can I get Vista to display the picture as the desktop background
in the correct size?

You can but what's happening is that the pixel dimensions of your
picture is too small for the amount of pixels your monitor has.

Lets say your pic is 500x500 and your monitor is 1280x1080. Fiting that
picture to fit the screen means that it will look pixilated because
pixels need to be "invented"...when it looks good it's too small. Unless
you have a small pic with a very high resolution (dpi)

To solve your problem you need to a better quality pic or a smaller
resolution monitor...

I don;t know the dimentions of your picture or your monitor so can;t
really advise further.

I am having the same exact issue!

It's not am image size issue for the originating file like the "answer"
given.
The "Desktop Background" section of the Personalization window is
simply not working. The background image resolution is fine if you go
to the picture file, right-click on it, and set the file as the
background image. But like the original poster, I'd like to set my
image to center as well. But it just won't center my image, just
expands it. It's almost as if the computer thinks my monitor is 32"
(seriously, I'm not over exaggerating) ... except that my desktop icons
and taskbar seem to be just fine. This is the only topic that comes
up when you google this problem as well. At least I know I'm not the
only one with this problem.

Has the original poster found any solutions to this issue?

I think I've found the issue. You can't just right-click an image and set it to background to get it to center at the appropriate size. To get the image to work properly, use the Personalize Desktop window's browse function to find and select the image from it's location that way.

As inconvenient as it is, I think the usual right-click method is actually creating a copy of that image, resized. From then on, it's referencing this copied image file in some temp folder, which is why it wouldn't change when selecting the "Center" option. It is centering the image it's referencing, it's just using a poorly inflated copy of the image you actually want.

Hope that clears this up. It was bothering me for a while, too.