So, the last idea was the best. Activate the transparent Positioning screen on double tapping the wallpaper itself. Then you are guaranteed to always have the wallpaper in the background, so you can see the widgets.
Also added some guideline crosshairs, so you can see exactly where you are putting it, which helps when the cube is rotating; it is not always easy to see where the centre is. (Also, when you double tap from the Live Wallpaper picker, the cube is shown in the background but no longer updating, I unfortunately have no control over that. So at least the guidelines can help you work in that unusual situation. Ideally I would disable the double tap enitrely in that situation.)
So here it is:
I will still leave the existing settings in there for fine tuning, but maybe put a note in the Settings screen of how to access the Positioning. Bit more testing, and then to the Market for version 1.9!
However (and as usual!) doing this has given me another idea. If I double tap to enable quick positioning, why not double tap to launch a generic Quick Settings screen, with not just Positioning, but access to Effects, Frames, Size etc from different tabs overlaid on the transparent window.
So you could see your cube spinning, hit the different Effect from thumbnails say down the side or along the bottom, and see the cube change immediately. That is probably for a later version though, a bit more work, but definitely do-able.
Update: Added new borders to show the valid draggable area for the cube as below. Just one more bug to fix, then ready.