Just to confirm I had this exact same issue. I upgraded Fences to new version.
Wallpaper engine stopped displaying wallpapers at all (not even application based ones)
I tried reinstalling Wallpaper engine (did not fix)
I decided to roll back to previous version of Fences and it solved the problem perfectly.
If you use Wallpaper Engine do not use the current version of Fences it will break your setup.
To the developer please realize Wallpaper Engine and Fences are a common custom desktop combination. Ensuring these two software's work together is important going forward.