You were supposed to have written these five lines:
background: #7da5d8 url(backgrounds/nav-bg.jpg) no-repeat;
Inside the 'My Documents' folder you should have a folder called 'Web' to place your HTML page and inside that folder. Make sure you have one called 'backgrounds' inside the 'Web' folder; you should have the image itself inside the 'backgrounds' folder - double-check your spellings.
So the folder structure is a little like: My Documents > Web > backgrounds
If you directly opened the image file itself in Firefox it probably would look like the following in the address bar: file:///C:/Documents%20and%20Settings/Bruce%20Canales/Desktop/My%20Documents/Web/backgrounds/nav-bg.jpg
I suspect if it isn't showing you have the image in the wrong directory or have made a typo. Thus try copy-and-pasting the multicoloured "CSS Code" example here into your CSS file overwriting those few CSS lines you originally had posted in #1
If it still doesn't work then post the full XHTML and CSS files just to make sure it is only a path issue and not a simple syntax problem elsewhere.