I use Ubuntu Natty, urxvt (with 256 colours), and Imagemagick (display -window root [...]) to set the root window to a picture. When I use the transparancy (-tr) option on urxvt, I get the Ubuntu X login screen background (The pink/purple one) and not the image that is currently on the root window. See picture at the bottom.

Note that the same problem exists if I run gnome-terminal and set its transparency.

I suspect that imagemagick is not drawing on the right X11 layer but I (and google) cannot figure out what the right option is.

Could the problem be with either the xorg configuration or with window composition?

Cross post from here and here in the vain hope that someone will know the answer here. If that offends, feel free to close. And it seems that it was indeed a vain hope...