if you use the VLC media player then simply start a video playing and right click > video > set as wallpaper and presto, an animated wallpaper and with audio no less.
only downsides, from what i can tell, is it blocks all the icons on the desktop (unless theres a way to have it as the actual background that i don't know about) and it has to be a video. not sure if flash (if swf files work in VLC then i have yet to learn how to get them to work right) or gif (this one always just gives me a black screen in VLC so i'm not sure if these would work at all.) would work. or you could just put pics in the playlist and have it as a slideshow but windows 7 already does that so that's kinda pointless. >.>
Updated by Xch3l