What did you need to restore SYSTEM access to?
Hmmm. I thought I replied to this but I appear to have been wrong. Either that or it must have been somewhere else. Anyway, it was everything in the following folder:
C:\ProgramData\Microsoft\Windows\Systemdata
Once I added the SYSTEM user I was able to set the lock screen picture again. Unfortunately, deleting a couple folders out of that folder in order to try another approach before this one also made it no longer function correctly. It no longer will show the last five selections and any picture that had been set prior to the updates now cannot be selected again without renaming them. Running sfc /scannow shows no problems or integrity violations.
I've tried restoring SYSTEM access to this folder, given myself access, given administrators access. I've tried renaming this folder to rebuild it. I've tried the various registry fixes people say. I've tried refreshing my device. None of this works, lock screen select screen is still blank and has the spinning circle when you try change it like you posted an image of.
I'm running 8.1 Update 1 on a Surface 2. This is really starting to bug me now, something so simple seems like an impossible thing to fix and I'm a huge techie. I can't imagine what the average user would be like trying to solve this.
I have noticed this folder is read only, and attempting to change that just produces an error.
You need to take ownership of the folders using the Advanced button on the Security tab of the Properties dialog. You will only have a few minutes to do what needs to be done before Windows attempts to reset the folders to the defaults, which will leave you unable to alter anything and will revert your changes as soon as that occurs. In my case, I made the mistake of deleting the contents of a few of the folders and now cannot see any choices of previously used lock screen pictures. I cannot set previous ones unless I rename the original image files. Then I can set them again. But, I can set them unlike before I made the temporary changes.
This is a very irksome bug. I fully agree. Another one is the fact that I cannot set custom icons in Explorer for the drives on my Multimedia Car Reader. Nothing shows no matter what I do. It got fixed with the release and installation of Windows 8.1 but several updates later it is broken again by a regression, and now I see little computer icons in the place of the drive icons. At least I am not seeing little laptop computers for those icons like before. But, still annoying.