Certain versions of the simulator appear to support this, not just for the home screen but for the lock screen too (which you get to with Command ⌘+L):
Note that since this isn't exactly officially supported, it may or may not work for you depending on your version of Xcode or the simulator.
It is possible (again) with the iOS Simulator version 6 (for iOS6).
First, add some images to your photo library. You can do this by using Mobile Safari (either surf the web or drag a local image to the simulator). Then perform a long press and save to camera roll.
Second, open "Photos", select the image and set as Background.
Third, restart the simulator (this irritated me at first, as it doesn't seem to work immediately)
How to do this for the Simulator in 11.4.
Cheers
Hmm. Probably, since you cannot set backgroundimage on your homescreen(exept from the locked view) on on actual iPhone pre iOS4, you cannot do so in the simulator either.
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