Ok, did some more digging, and I found what was happening, so Launchbox doesn't use a colored Windows background to "make" the theme. It has to have wallpaper or an image or whatever. So when it didn't change with wallpaper engine, I thought it was broke, then when I turned wallpaper engine off, I thought it was REALLY broke as I have a blue background underneath wallpaper engine. I installed LB on a third PC with default WIndows wallpaper, and then turned the wallpaper on and off. And viola, LB turns blue (as it uses the wallpaper) and the gray screen above if there is no wallpaper at all, regardless of which ever color you choose for the background. Guess I don't know why the devs would opt for the grey screen above if you have a colored background, I mean if the background is blue and your wallpaper is blue(or any color for that matter), the effect inside LB is almost identical (at least on the wallpaper I use).
In any case thanks for all the help.