Aside from hundreds of neat, useful widgets, one of the most unique features of Android is the ability to set live wallpapers on your homescreen. They keep your device fun, fresh, and most importantly, cool to show off. In the Market there are hundreds, if not thousands of neat live wallpapers. I've tried out a lot of them and found quite a few that I really like.
One quick side note: A lot of people are concerned that live wallpapers, being in constant motion, will have adverse effects on battery life. The truth is, the majority of them do not. That doesn't mean a poorly developed wallpaper won't suck the juice right out of your phone, but most of them will not cause any noticeable difference in the length of your battery life. If you're afraid your battery will drain, try one out while you're sitting around the house one day. If it does, revert back to a normal wallpaper or try another to see if it's just that specific wallpaper before you write them off entirely.
With that being said, here are a few of my favorite live wallpapers to use:
Ball Paper (Free in Android Market)
This is the wallpaper that got me on a wallpaper downloading binge. After the most recent update, this one actually did start draining my battery a little more. You can set all sorts of different variables that make the balls act and look differently like gravity, collision elasticity, speed, colors, etc. The balls are also affected by your accelerometer and will fall to the ground.
Light Grid ($0.99 or free in Android Market)
Light Grid was the second live wallpaper I tried and probably my second favorite. With this one, you set up to four different colors with a background color and the squares in the grid will change colors, fade to black, change positions, etc. It creates a pretty cool looking effect and has little to no effect on battery life.
This wallpaper is one that we're all familiar with and only for the true nerds. You earn extra points if you can look at this and make something of it. It's a remake of the image from the terminals in the Matrix movie. Get your nerd on!
aniPet Aquarium ($0.99 or free in Android Market)
The aquarium wallpapers take me back to '95. I remember back when my grandmother's desktop had the swimming fish on it and I thought it was the most amazing thing in the world. If you look in the Market, you will find a lot of different variations of this. There isn't much to tweak with this one, and nothing particularly amazing, but it's simple and coy. (It's really hard to get a screen capture of this one without it being jagged and cut-off)
Liquid Particles (Free in Android Market)
Liquid Particles isn't a lot different from Ball Paper, and isn't as polished either, but it's still pretty cool. This one doesn't use your accelerometer and there aren't a lot of settings to tweak. Rather than the balls colliding on this one, they are all pulled to wherever you put your finger and shot out in every direction when you release, almost like a firework.
Plasma Tree (Free in Android Market)
If you thought the plants and trees in Avatar were cool, you'll really like this one. It looks low-quality at first, but once it starts branching out, you'll change your mind. When it's fully branched out, it will sprout little blooms on the end of the branches much like the trees in the movie. You can have the trees colorful or in black and white.
Thunderstorm ($0.99 or free in Android Market)
There are a few different storm-esque live wallpapers, but none of them come close to Thunderstorm. As the clouds pan and rain falls you get randomized strikes of lightning that look relatively real, or more so than others.
Water ($0.99 or free in Android Market)
I've never been one to like beach pictures as my wallpaper or anything remotely relating to the ocean, but this is by far my favorite wallpaper yet. This one looks like someone took a video of the water as they were sailing. It's an endless body of water panning by with a ripple effect. It's very simple, but looks very nice.
If you know me or ever see my devices, you would know I am constantly changing the wallpaper. Live wallpapers keep things fresh for me and make for a lot of comments when someone wants to see my device. These are just a few that I've tried and actually liked. The majority of the wallpapers above that have a paid version as well are limited as to what setting you can or can't tweak. If you download a free version and really like it, consider buying the paid version to help support the developers, that's what they're there for. There are probably thousands in the Market that will never see the light of day, so if you have any others please share them. I'm always changing my wallpaper!