Have you replaced the source in Cydia for iOS 4 for vwallpaper? If not, delete it, replace source (google vwallpaper iOS 4 and it'll give you the source piece of code for it) and then re-DL it. Should work...I haven't used vwallpaper in months so i have no idea if it works on 4.2.1 anymore...it DESTROYED my battery life.
You mean the source for vWallpaper which is http://deb.danstaface.net right? I tried both the old source and the new source, both have vwallpaper for OS4 but both caused springboard crashes. Maybe its not really that worth it.
Do you have Crash Reporter installed? I thought vWallpaper was the source of my problems as well (along with a long list of other mods) but after checking my error log it turned out that after upgrading to 4.2 and rejailbreaking, winterboard was the reason I kept getting kicked into safe mode. I reinstalled winterboard and so far it's been working fine.
That being said, I just did this yesterday so if it continues I'm back to the error log!
vWallpaper is not currently set up to display videos that are 640x960. I've tried several times to do this but have been unsuccessful. There are 2 options for vWallpaper in the repo: i.danstaface.net - one for OS4 and one for OS3. The OS4 version has a workaround to apply video wallpaper that isn't fullproof and I can't get it to work, therefore I recommend using the one for OS3, because that's what I have currently working on my iPhone 4 on iOS 4.2.1 right now.
These Matrix-based videos below I extracted directly from The Matrix and The Matrix Reloaded with the aid of DVDFab, VirtualDub and ImTOO Video Converter Ultimate. Click on the pictures to download the MP4 files. Right-click the pictures and "Save As Picture" to download the actual photo files to save with the MP4 files if you wish to view a thumbnail of the video within vWallpaper.