This occurred on a Windows XP system running service pack 2 with Internet Explorer 7 installed.

 
Problem

One of our customers reported that there were a few users that were getting the “Restore My Active Desktop” button appear. When click on it nothing would happen.

 

Resolution

In this case the fix was to amend a registry setting called DeskHtmlVersion which can be found in the following path:

HKEY_CURRENT_USERSoftwareMicrosoftInternet ExplorerDesktopSafeModeComponents

All you need to do is change the value of the DeskHtmlVersion REG_DWORD to read 0

After you have made the change you will need to log off then back on again and your desktop should be restored.