Just made a simple VI with no menu or title bar, set the window size to always fill the screen and built it as application.scr. Installed it...everything OK. However if the RTE is located in the same directory as the application launching it returned an error saying the application could not find the neccesary resources...that might be what you see as well...(?).
On a machine with LV installed the RTE is already available so that is not a problem...Making it respond to commandline switches can be done either using the new commandline functionality of LV7 or using the commandline dll you can find here on the zone...it allows the application to capture and act on the commandlines when the application is launched.
Now you may want to add code in your application t
hat reacts to mouse actions so that the application terminates when the user moves the mouse /clicks a key etc...like other screensavers do. Use an event structure to capture such events...
Here's a general description on how to create screensavers that also applies in this case (nothing new there..but just to show that the procedure you already have is as MS says...):
http://support.microsoft.com/default.aspx?scid=kb%3ben-us%3b146907