How can I disable "Set as Desktop Background" as an option in Firefox

You Need to Configure userChrome.css file  Click Here to Configure

Click Add to Firefox  then Click Install  Afer completing the installation restart Your browser

Then Click Tools --> ChromeEdit Plus --> ChromeEdit

You need to Add below line

#context-setDesktopBackground {display: none !important;}

Then Click restart.

Dont forget to remove ChromeEditor addon. 

Manual Method :-

You need to edit below File Open with as a NotePad

C:\Users\Administrator\AppData\Roaming\Mozilla\Firefox\Profiles\36xwzu03.default\chrome\userChrome.css

Clear all the data  

Add below Lines

 /*
 * Edit this file and copy it as userChrome.css into your
 * profile-directory/chrome/
 */

/*
 * This file can be used to customize the look of Mozilla's user interface
 * You should consider using !important on rules which you want to
 * override default settings.
 */

/*
 * Do not remove the @namespace line -- it's required for correct functioning
 */
@namespace url("http://www.mozilla.org/keymaster/gatekeeper/there.is.only.xul"); /* set default namespace to XUL */

#context-setDesktopBackground {display: none !important;}

/*
 * Some possible accessibility enhancements:
 */
/*
 * Make all the default font sizes 20 pt:
 *
 * * {
 *   font-size: 20pt !important
 * }
 */
/*
 * Make menu items in particular 15 pt instead of the default size:
 *
 * menupopup > * {
 *   font-size: 15pt !important
 * }
 */
/*
 * Give the Location (URL) Bar a fixed-width font
 *
 * #urlbar {
 *    font-family: monospace !important;
 * }
 */

/*
 * For more examples see http://www.mozilla.org/unix/customizing.html
 */
 

then save and restart your browser .