Emacs 23 just added the functionality to change the alpha value of the current frame to make it transparent. I just type the following command in .emacs:
(set-frame-parameter (selected-frame) 'alpha '(85 50))
It actually shows what's on the windows behind Emacs. However, I would be interested in making an Emacs background image instead. Maybe of some stellar landscape or something. Does anyone have ideas on how to change the background image behind the frame?