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Yes, the iPhone Wallpaper can be customized to whatever you want. But to do so, you have to save the picture on the computer and sync your iPhone. What if you could browse the internet using your iPhone, find a picture you like, and convert it to your iPhone wallpaper on the spot. No sync, no computer. That’s exactly what Justin’s iDecorator does.

Check out the video and here’s how he does it:

1) get sshd, curl running on your phone. (see tuaw.com for info on that)
2) put this bookmarklet in your bookmark bar (semi-optional) look familliar? it should, it is basically a hack up of #4.
3) enable DemoApp in the SpringBoard (again, see tuaw), and put this as the DemoApp file (located in DemoApp.app). (don’t forget to chmod +x it)
4)
close all your safari windows but one, navigate to a website with a
picture you like, run the bookmarklet, select the picture, leave that
window open but go back to the app menu (the springboard)
5) run DemoApp, tada!

Source: finishtherace