vWallpaper is a new Cydia tweak which allows you to enable Animated HD wallpaper on your iPhone, it allows you to embed .mov or .mp4 videos as wallpapers on your iPhone or iPod Touch on iOS 4.x! vWallpaper is available in Cydia Store for free!
Step 1: You have to Jailbreak your iPhone by following the guide posted here to jailbreak iPhone 4 on iOS 4 / 4.0.1!
Step 2: After jailbreaking, press Home Button and touch on “Cydia”
Step 3: Now Touch on “Manage --> Sources”
Step 4: Touch on “Edit” and then on “Add”. Type http://i.danstaface.net/deb then hit “Add Source”.
Step 5: Now tap "Search" tab and search for “vWallpaper”, then install the app!
Step 6: Touch on "vWallpaper" from your Springboard, then tap on "Video Wallpaper"
Step 9: After selecting your animated wallpaper, your device will be rebooted automatically and you will get animated wallpaper on your Springboard! Hola!
Here's a video from DinoD7 which shows you a perfect explanation for what we showed you above,