For some time I have been using a group policy and Active Desktop to set users Wallpapers however Active desktop is far from perfect.

So instead I have now started using the attached ADM to specify the desktop wallpaper and the desktop background colour.

The downside of not using Active Desktop is only bitmap images are allowed.
 

The below steps will slow you how to set the permissions on a given registry key using Group Policy, this is vey useful is you want to run a script with user privileges that needs to modify a certain registry key.

I am starting to look at deploying Windows 7 to some of our Laptops.

Our Domain controllers are mostly Windows 2003 and there is a single Window 2008 controller. I was a little un-sure if we needed to upgrade our DC's to 2008 R2 before we could set Windows 7 GPO's.

Essentially the answer is no your don't have to upgrade a single one of your DC's before you can set Windows 7 GPO's but you will need a Windows 7 client with the Remote Server Administration Toolkit (RSAT) installed, alternatively you can use a 2008 R2 Server to configure the policies.