Try putting the icons into the fences rather than put the fence on the icons...
If that's not the problem, it's likely a problem because you run a non standard installation (such as xplite, or other hack xp. Install SP3, if you can't, then you DEFINETELY have a borked XP).
If *that* is not the problem, you likely got something else that hooks onto the desktop/icons that conflicts with fences.
If it is a conflict, YOU need to figure out what the conflict is, and then tell about the problem. It'll be fixed eventually.
Thanks for the feedback, mickeko.
That's how I did it - created fences & dragged icons into them. Oddly, the hiding function worked properly with the first public release. There was an update within a couple of days of that first release, however, which resulted in this failure-to-hide behavior (it occurred with the first published update after the initial public announcement). I was able to uninstall Fences, re-install from the first release download and it was fixed. I stayed with the first release for awhile, but then one day after a reboot the icons failed to hide again, even with the original release. So I've been updating to each new version as it comes along since.
I have a normal/standard XPP SP2 installation, no hacks. Have chosen not to install SP3 for a couple of reasons. Only thing that 'hooks into the desktop icons' I have is IP4 (4.10.177) & believe I've been at that version since before installing Fences.
I've been posting updated status replies here after installing new releases for the benefit of the devs - I haven't been able to identify a conflict and have limited ability to do so.