Hi xiz, welcome to the Vista Forums.
I've never personally had this problem before, but here are some steps to try to fix this little problem.
1) Go to Start Menu > Control Panel > Folder Options
2) Click the View tab
3) Look under advanced settings check the status of “Always show icons, never thumbnails”. This one will need to be unchecked to see thumbnails, especially in the Desktop Background chooser.
Alternatively, if the solution above doesn't work, you may want to try doing an
Install Repair, where it allows you to repair any corrupt files. Make sure you have your Vista DVD handy! Also, be sure to uninstall Service Pack 1 first if you do have it installed.
To Uninstall SP1:
1) Go to Start Menu > Control Panel > Programs and Features (or go to Run > Appwiz.cpl)
2) Click "View installed updates".
3) Click Service Pack for Microsoft Windows (KB936330), and then click Uninstall.
4) Follow the onscreen instructions
Good luck, hope this helps!