So am I crazy or is "photo" probably not the right verbiage for this bit of UI? It's very common to set images that aren't photos as your desktop picture.

The only way is it makes any sense is as a "backport" of iOS terminology, which itself is an outdated artifact of downloaded images getting put in the user's camera roll since there was nowhere else they could go in early iOS releases.

Seems like it'd be better to use "image" or "picture" and to fix iOS instead?

So what if we took Liquid Glass HIG "rules" as mere suggestions, bent them as needed, and worked within their constraints to retain some semblance of usability and "Mac-ness"? If enough devs buy in, an alternative standard with a higher bar for thoughtfulness could be established, with apps adhering to it standing out in a good way.

(mockup is just a suggestion and result of a dev playing around in Sketch, a real UI designer could take the concept much further)