There seems to be a problem with VS4 not displaying large background images in the editor. Objects placed in the scene (and their images) display fine, just not the background. Also, running the game works fine; it's just the editor that is not displaying the background.
I've tested different file types (PNG vs JPG) and it seems to be the total pixel count of the background and not the filesize. It would appear that the maximum pixel count is 10 000 000 (e.g. 4000x2500).