When the Azure VM started, by default BGinfo.exe is ran to show VM information. This is what is showing as your desktop background. So to be able to have your own desktop background show, BGinfo needs to be disabled. This can be accomplished with Azure PowerShell. Please see below article. http://azure.microsoft.com/blog/2014/04/11/vm-agent-and-extensions-part-1/

• Disabling BGInfo: Read the extension ReferenceName and Version from the output of the following cmdlet:

Get-AzureVM –ServiceName –Name | Get-AzureVMBGInfoExtension

Get-AzureVM –ServiceName –Name | Set-AzureVMBGInfoExtension –ReferenceName –Version –Disable | Update-AzureVM

Logoff/Login is required sometimes to disable Bginfo.

Here is a screenshot of my command that I was able to run. Servicename is your cloudservice name. Name is the VM name.

BG Azure VM