Hi tanuki,
Here's a quick demo that you can look at. Save this as an html file and then run it. It was just a quick demo, but I'm sure it can be improved.
I can see why you liked it. I was having fun too 
Let me know if you have any questions
HTML Code:
<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.01//EN" "http://www.w3.org/TR/html4/strict.dtd">
<html>
<head>
<meta http-equiv="Content-Type" content="text/html; charset=iso-8859-1">
<title>Setting Image as page background</title>
<script type="text/javascript">
function setAsBackground(img)
{
document.getElementById("workspace").style.background = "url(" + img.src + ") no-repeat center center" ;
}
</script>
</head>
<body id="workspace" style="width:80% ; height: 600px;" >
<div id="thumbnails">
<img alt="NightFall" src="http://my.playfuls.com/gamebabes/content/thumb2/thumb_6495.jpg" width="100" height="100" onMouseOver="setAsBackground(this)">
<img alt="Nature" src="http://www.netpakistani.com/wallpapers/wallpapers/Nature/Nature-12.jpg" width=" 100" height="100" onMouseOver="setAsBackground(this)">
<img alt="Google Wallpaper" src="http://www.wallpaperbase.com/wallpapers/computer/google/google_2.jpg" width="100" height="100" onMouseOver="setAsBackground(this)">
</div>
</body>
</html>
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