Files imported for "wallpapers" using a CD with the images stored in a "Pictures" folder are stored as JPG files on the CD.
They are imported into the unit and then stored on the hard drive as BMP files. I haven't tried putting BMP's on the CD and trying to import them. The manual says that you need .jpg files or .JPG files on the CD and that's what they will import.
All the wall papers stored on the hard drive are in BMP format, the boot image and all the stock backgrounds and your 1 imported JPG background are all stored on the hard drive as BMP's.
If you are yanking the drive out of the unit and putting it into your desktop computer and after paying a service to unlock the drive you copy over the files, you will need BMP files. If you are transferring the pictures from a CD like it says in the manual, you need JPG files (according to the manual). For a test, try making one a BMP calling it something else and see if the Z1 finds that image.