Tried it after restart but with the same result. There are a couple of differences.
When I tap on "SIngle PIcture" in the "Type of Screen" menu it takes me straight to Gallery with no other choices.
This is not a problem. You did not have Androzip
installed, so it just brings you directly to your Gallery.
I select a picture taken by the phone camera from my Gallery but when I back out the first tap takes me back to "Settings" then the second tap takes me back to my homescreen. It does not show the new picture or offer the "Set Wallpaper" option.
This is strange. It should goes back to the page where you can pick [Set Wallpaper
Sometimes, there's a delay, you should wait a little while. Hope you didn't press the return button another time.
One more thing is that, did you select [Fit to Fullscreen
] from the [Crop/Reside ratio
I am using the TW Launcher homescreen but with only one screen, I have deleted the others.
No problem for that too. It worked with all Launcher
Try to play around with the settings. If you still have problem, try un-installing and re-install again from the market.