I tried this out. If try to use a picture that you have taken previously and its in your library then you only get the corner of the image as the wallpaper.
However, if you take a picture and while its showing you the preview click menu > set as wallpaper it will work correctly (it did for me anyways)
Hope that helps, and I'm sure there are other ways to do this that I don't know about
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Another option/ work-around is via the app CaptureIt. With this app installed,open the pic you have taken. Then use CaptureIt to take a screenshot. This screenshot can then be selected as wallpaper. It will be located in your default picture folder. Hope this helps. ~Cheers
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