A plain jane old Workbench is probably limited to only .iff files in 256 colors and that is just not what u want.
Since you are using a virtual Amiga I strongly recommend you go here:
http://amikit.amiga.sk/index.phpAnd download AmikitOS for free. Its the ultimate fully loaded Amiga. It has all the little goodies preinstalled and configured for you.
Once you have that you can use any filetype u can think of for the backdrop.
.png, .jpg, .iff .etc
And you'll be able to use fast hires gfx card modes in 16 million colors instead of lame old 256.
