This nice Screeshot was made with my Amiga 500.
All you need to do this with your own Amiga 500 is OCS, 1Meg of ChipRAM for
something left to work with after the pic is loaded, Scalos or anything
else that lets you lock the WB-Pens and Kick 3.x for having the possibility of
setting an Image as Background.
I refrain from giving you more details about my configuration as it is obsolete.
Upgrading your 500 to 020, 030 or even 040 just makes daily work more
convenient, but does not have anything to do with the possibility of setting up
beatiful backgrounds. OCS is enough !
More Information about my Amiga 500-Support-Project can be found under
http://members.magic-web.net/home/Granada/   (German only)
btw: I suggest a Flickerfixer.