same thing happens to me, and I tried on two different computers.
Although it seems hardware related (as in lack of specs) I think it
shouldn't happen. I have a laptop with basically the same specs of a two
year old macbook (dual processor/1gig RAM) and the mac has smooth
background transitions.  I really like the feature and hope that it gets
better in Karmic, because right now even the music skips when changing
wallpapers.

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System hangs for a while when changing background image
https://bugs.launchpad.net/bugs/359594
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