The "Override all background colors" and "Override all borders" turn background colors/images and borders off in the cells (and columns and rows). It won't override the background color/image of the screen itself. That's the point - to show the background color/image of the screen without the individually set background colors/images of the cells getting in the way.
So, in the Screen Background dialog, if you check those override boxes, and set a background color, and then press OK, you see a background color for the screen (in the Game window), right? OK, so now go back to the Screen Background image dialog, make sure the same screen is selected (the currently displayed screen on the Game window), and select a background image. Does it show up in the little preview window (ie, it's a valid image file)? When you press OK, the image does not show up as the background in the Game window?