Windows’ built-in wallpaper changer can switch desktop background on a configurable schedule, but overall its ability is way too limited. Spews , on the other hand, isn’t a feature-rich program but at least it gives a few more. You can add multiple source directories, prevent the program to change wallpaper when a certain process is running, add some hotkeys, switch wallpapers every X seconds/minutes/hours, decide how the wallpapers should be displayed on the desktop (scaled, stretch or center), and run it automatically on Windows startup.
Among all of its features, the most standout one is probably that it can automatically pause itself when it detects a certain process is being active–that is, the one that you add to the excluded process list.
The other feature that you may also like is that it allows you to create custom hotkeys to toggle start/stop wallpaper switching, to display the next wallpaper, and to copy wallpaper path.
Spews works for Windows XP, Vista and 7. The developer explicitly says that it doesn’t work on Windows 8 but feel free to give it a shot.