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You then reinstalled it through Steam but chose a different directory or hard disk than before. This is why you then got the prompt from Wallpaper Engine telling you that it was also installed in a different directory and this is also why your playlist is missing (because your config file is in the other directory).
What you should do is uninstall the app through Steam again, then reinstall it into the same directory as before. Steam will notice that the app is already installed and Wallpaper Engine will have its old config back.
Regarding the wallpapers you are using: If you don't see your subscribed wallpapers in the "Installed" tab, then Steam is still bugging out for you. Your wallpapers are subscribed to your Steam account, no app update can delete these subscriptions. If you go to the Wallpaper Engine Workshop page while logged in to your Steam account, hover over "Your files" on the right and then "Your subscriptions", you should see all your wallpapers still there and Steam should download them:
https://steamcommunity.com/app/431960/workshop/
Since this is all somehow related to Steam, your Steam is probably acting up in a really bad way for some random reason. Try what I suggested first, uninstall the app again and reinstall it into the old directory. If you are unsure what the old directory is, it should have been shown to you in the "wrong location" prompt you mentioned.
C:\Program Files (x86)\Steam\steamapps\common\wallpaper_engine
https://help.wallpaperengine.io/en/steam/backup.html
So that's this folder inside of your new Wallpaper Engine directory:
wallpaper_engine\projects\backup