I have know idea about this error. Presuming you have no problems booting at the moment the first thing I would do is make a backup of "C:\Windows\System32\authui.dll" and C:\Windows\Branding\Basebrd\basebrd.dll" and place them in C:\ for easy access.
Next make sure you have a way to restore these dll's in case you can't boot. Should be able to do this with a Linux boot cd or the Windows 7 DVD (
http://www.sevenforums.com/tutorials/93347-copy-paste-windows-recovery-console.html), if not using 64bit Win7 DVD try copying a text file to verify that they are copied to the 64bit folders and not the "\Windows\SysWOW64\" folders. Name the text file AAA or something easy to locate.
It says something along the lines if you continue it will force the computer to do this and if you quit it will close the program.
If you are sure you can restore the dll's click continue unless the computer freezes and prevents you from doing anything.
Have you made any other changes other than the User Tiles picture size and background? There might be a problem with a change you made. I would try creating a new Logon making one change at a time, applying after each change.
This could be due to conflicting software, a virus scanner or who knows, it's a computer. You could try logging on as a Admin if your not already.
If you havn't made any other changes and I presume changing just the User Tiles worked for you then try creating a new Logon, make the User Tiles changes and make sure this still works. If it does then backup the backgound.jpg and then replace with yours and see if the error still persists.
If the error is still there then restore the backed up background.jpg and apply the Logon. I have tested it with a image larger than 256kb and a resolution greater than mine and checked that in fact it does work and uses the "\Windows\System32\oobe\info\backgrounds" folder so I would suggest rather than using Logon Workshop to replace the background just use the manual method in the link I provided earlier, replacing the background(s) created by Logon Workshop.
You could also Google the error and see if anything turns up but I wouldn't spend hours looking.