When I click on the applied wallpaper to remove it, it gives me a "cannot place here" error. I tried doing the same thing to my house in Velia and had no issue bringing up the usual confirmation prompt.

No amount of relogging, reentering, character swaps or "part selection" changes this outcome, nor does the type of wallpaper (crafted or pearl)

Hello, 1h -ish ago i sent a ticket about this problem and i somehow i found a solution to this myself, stay in "place mode"

but go to the first tab, the " all tab" and choose " wall decor" or "floor decor" and find your wallpaper/ floor, click on it and you will be asked if you want to delete the item, that's how i deleted my ugly wallpaper. Hope this helps !