While using IE, if I go to a website and right click on a picture and then click set as background. Where does this picture file stored on my computer?

more than likely you will find it at;
C:\Documents and Settings\desk top\my Documents
or you can try this to find any of the photos you have collected in one place by doing the following.

1.)Right click on the middle of your display screen.
2.)left click on Properties
3.)left click screen savers
4.)half way down in window you will see a small arrow pointind down.
5.)click on this and a list will scroll down, in this list you should be able to find any and all back grounds and screen savers you have ever placed on your computer.
6.)when you find the one you wish to use left click it and then left the apply button on the bottom of this small window.

I hope this is what you wanted! :D

If you are running on XP and IE, the picture will be saved as "Internet Explorer Wallpaper.bmp" in the Internet Explorer folder.

Ahh thanks. can't let other people see the interesting picture. ;)