So here is problem. I tried using the graphic above to create the look I want -- no red thank you very much -- by creating a PNG file with different background color, but it didn't work well.

Left is original close window, center is after selecting PNG of 78x78px solid color, right is completely wrong end result.
All I want to do is have different color background under X. Should be simple but doesn't seem to be.
It looks like you edited the glyph not the background.
To edit it just do the following :
1) Edit the style in Curtains
2) Go to the Buttons tab
3) Find the close button
4) Find the active background in the drop down
5) Point this to a FOUR part image (as there are four states, Normal, Mouseover, Pressed and Disabled). This part will stretch using margins.
6) Do the same for the inactive background (or mouseover inactive windows may show red)
7) Apply