Well, I generally use $FILES and the {move|is}uploaded_file() functions, myself... using registered_globals and $field_name etc. is seriously deprecated.
You've got two tests:
if ($wallpaper_name == "" && $wallpaper_small_name == "")
if ($wallpaper_name != "" && $wallpaper_small_name != "")
Now I suspect that one of them is wrong (that the && should be a ||), because neither would succeed if one file name is set but not the other.
PS: ../images/wallpaper is not an absolute path; and you really should get in the habit of putting quotes around your strings.
And what about the database? Was anything uploaded? You don't even say if you tried to upload something or left the fields blank when you got that response (or is it the same either way)?
I presume the line
$number = mysql_query("", $linkid);
can be dropped, since you've switched to using a text file. I can't see why; what does that give you that "SELECT count(*) from RPGI_wallpaper" doesn't?