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I'm not sure if it's different with the update (2.1) as I haven't updated my Nook HD yet.
Having stated that, up until the 2.1 update, what you do is tap and hold on the home screen and then select "wallpaper" from the pop up menu on the bottom of the screen. If you want a picture that you've added to the Nook, select "gallery" and then just crop the image after you select it.