I plugged mine in with some bmp and jpeg files hoping to set my wallpaper, but when I go to photos, it sees the USB drive, but says there are no image files on it. What gives?

When highlighting the drive, hit triangle and select "display all." This should find your files. However, I'm not sure if PS3 will natively display bitmaps. JPEG's will definitely show.

Hit the triangle button to see all files? Or you can create top level directories that the PS3 will automatically detect. They are "MUSIC", "PICTURE", "VIDEO" and "PS3". The PS3 folder is where backup gamesaves and stuff like that are stored.

Edit: _Avarice_ beat me to the triangle button.

Bitmaps could be losslessly converted to PNGs if they won't work.