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If you have any anti-virus besides Windows Defender, then you should exclude Wallpaper Engine from it to be sure they don't cause stability issues. Regarding the settings, you could try to reset everything with the reset button. You may also want to cleanly reinstall your graphics drivers because it's not uncommon that they break after a major Windows update.
If you're still having issues like this and it seems somehow to be related to Wallpaper Engine please share this log: https://help.wallpaperengine.io/en/debug/scantool.html
Shutting Windows 10 down is not the same as restarting to reduce the time needed to start it again: https://www.howtogeek.com/349114/shutting-down-doesnt-fully-shut-down-windows-10-but-restarting-it-does/
There is no general compatibility issue with the 2004 update. Every time Microsoft releases a big update, there are core issues in Windows and hardware drivers for some people. There is nothing in Wallpaper Engine that "needs to be changed" because of a Windows update because it's a pretty simple "user level" application and not a driver or core system component.
The explorer does not get hooked at all unless you use the clone wallpaper option. So if you do use it and you suspect that a hook causes this issue, then please disable that option to verify whether it's the hook or not.