I think there must be something wrong with this install.
I had a previous install and I just copied all the background
files I have in the /usr/share/xfce4/backdrops with an sudo
command in a terminal and they were there and visible when
selecting the backdrop I wanted without any trouble.

I don't know how to fix it so I may just over write this
partition with Xbuntu 12.04 again only use a different source
disk to see it works then.

I had a hard time convincing myself it was a bad install.

Thanks for confirming that I was doing what I thought I had
done before. I have just re-convinced myself I do really like
Xubuntu, I loaded Lubuntu 12.04 and Kubuntu 12.04 on a couple
of spare partitions here and tried them again. I may continue
to see if I can learn to like Kubuntu over time.