This is a relatively new happening because widows only use to display a few default wallpaper files and a single file that you may have selected from the My Pictures folder. Now (mine does) it displays every file in the My Pictures folder. Whether this is by design or a bug I don't know.
Maybe you could backup all the Windows Wallpaper .jpg and .bmp files that you don't want listed, and just delete them or try moving them to another folder besides My Pictures?
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