I've checked the system page and there are no backgrounds or panels there, apart from the default green background. The system properties page shows a blank screen and background.

As I've already stated, if I add a background to this or any other activity properties page, it immediately appears on both the picture of the screen and on the appearance page but not in the simulator or on the handset when downloaded.

The XCF file is, indeed one prepared in PEP v1 which was automatically exported over to PEP v2 when I opened my project and appears to be unaltered from the original. Indeed, I've already made modifications to buttons successfully.

If you cannot think of anything else then I'll try a completely new file in PEP v2.

Thanks
Terry