The option in Nautilus to "set as wallpaper" when right clicking on an image file shouldn't copy the image to /pictures/Wallpapers, as it is unintuitive and can be problematic.

First, if the file you are selecting is local, I do not see a need to make a redundant copy of the file in /pictures/Wallpapers. If the rationale is to make sure that the user maintains a background image even if that original file is moved or deleted, I think this should not be a usage case we care about. I find that the users that I interact with on a daily basis will organize their wallpapers in some sort of named subdirectory of /pictures, so moving/deleting is not a  problem. And it actually becomes very confusing to them why copies are being made in /pictures/Wallpapers, as they intuit that the source file is the one being applied as the wallpaper, not a copy of the source file.

Second, if you already store your wallpaper images in /pictures/Wallpapers, right-clicking on an image and setting it as wallpaper will create a redundant duplicate image directly next to the image you are already selecting. This is confusing and looks sloppy to our users.

Third, if we can eliminate the need for copying local images to /pictures/Wallpapers, this would solve #2 implicitly. Further, for the case of setting remote files as a wallpaper (perhaps from a different directory or from a remote site such as flickr), perhaps copying to a .cache/Wallpapers is a better choice than /pictures/Wallpapers. This way it won't be obviously visible to our users.