some of the episode backgrounds have the loop in name but actually do not work - this is as it seems one of them.
So you havent done anything wrong.
So either use another working episode BG or change this one to overlay and make your own looping BG using the instruction in daras web page as you got the link above.
Just a note - I reccomand you to use & instead of @ for all lines above the transition commans to avoid glitches