[AT&T Samsung Galaxy S II Skyrocket SGH-I727] zobie:
I guess Mohan you have already identified the issue. My catlog shows Outofmemory due to wallpaper too. Below is the snippet.

04-04 15:53:50.881 I/PackageInfo(28559): getRunningTasks()

04-04 15:53:50.922 D/dalvikvm( 493): GC_BEFORE_OOM freed 4K, 4% free 253249K/261511K, paused 128ms, total 128ms

04-04 15:53:50.922 E/dalvikvm-heap( 493): Out of memory on a 3686416-byte allocation.

04-04 15:53:50.922 I/dalvikvm( 493): "WindowManagerPolicy" prio=5 tid=26 RUNNABLE

04-04 15:53:50.922 I/dalvikvm( 493): | group="main" sCount=0 dsCount=0 obj=0x42c4cfe8 self=0x5e5a9a58

04-04 15:53:50.922 I/dalvikvm( 493): | sysTid=550 nice=-2 sched=0/0 cgrp=apps handle=1582989616

04-04 15:53:50.922 I/dalvikvm( 493): | schedstat=( 0 0 0 ) utm=10872 stm=2380 core=1

04-04 15:53:50.932 I/dalvikvm( 493): at android.graphics.BitmapFactory.nativeDecodeStream(Native Method)

04-04 15:53:50.942 I/dalvikvm( 493): at android.graphics.BitmapFactory.decodeStream(BitmapFactory.java:621)

04-04 15:53:50.942 I/dalvikvm( 493): at android.graphics.BitmapFactory.decodeStream(BitmapFactory.java:693)

04-04 15:53:50.942 I/dalvikvm( 493): at android.graphics.drawable.BitmapDrawable.<init>(BitmapDrawable.java:157)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.sec.WallpaperWidget.setDefaultWallpaper(WallpaperWidget.java:108)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.sec.WallpaperWidget.setLockScreenWallpaper(WallpaperWidget.java:156)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.sec.WallpaperWidget.init(WallpaperWidget.java:203)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.sec.WallpaperWidget.<init>(WallpaperWidget.java:57)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.LockPatternKeyguardView.updateScreen(LockPatternKeyguardView.java:1298)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.LockPatternKeyguardView.<init>(LockPatternKeyguardView.java:721)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.LockPatternKeyguardViewProperties.createKeyguardView(LockPatternKeyguardViewProperties.java:52)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.KeyguardViewManager.show(KeyguardViewManager.java:229)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.KeyguardViewMediator.handleShow(KeyguardViewMediator.java:1407)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.KeyguardViewMediator.access$1400(KeyguardViewMediator.java:110)

04-04 15:53:50.942 I/dalvikvm( 493): at com.android.internal.policy.impl.KeyguardViewMediator$4.handleMessage(KeyguardViewMediator.java:1260)

04-04 15:53:50.942 I/dalvikvm( 493): at android.os.Handler.dispatchMessage(Handler.java:99)

04-04 15:53:50.942 I/dalvikvm( 493): at android.os.Looper.loop(Looper.java:137)

04-04 15:53:50.952 I/dalvikvm( 493): at com.android.server.wm.WindowManagerService$PolicyThread.run(WindowManagerService.java:957)

04-04 15:53:50.952 I/dalvikvm( 493):

04-04 15:53:50.952 I/PackageInfo(28559): add runningTaskPackage : com.sec.android.app.launcher

04-04 15:53:50.962 I/PackageInfo(28559): add runningTaskPackage : com.android.phone

04-04 15:53:50.962 D/skia ( 493): --- decoder->decode returned false

04-04 15:53:50.962 W/dalvikvm( 493): threadid=26: thread exiting with uncaught exception (group=0x41cde360)

04-04 15:53:50.962 E/android.os.Debug( 493): !@Dumpstate > dumpstate -k -t -z -d -o /data/log/dumpstate_sys_error

04-04 15:53:50.962 I/PackageInfo(28559): add runningRecentTaskIntent : com.sec.android.app.launcher

04-04 15:53:50.962 I/PackageInfo(28559): add runningRecentTaskIntent : com.android.email

04-04 15:53:50.962 E/AndroidRuntime( 493): *** FATAL EXCEPTION IN SYSTEM PROCESS: WindowManagerPolicy

04-04 15:53:50.962 E/AndroidRuntime( 493): java.lang.OutOfMemoryError

04-04 15:53:50.962 E/AndroidRuntime( 493):	at android.graphics.BitmapFactory.nativeDecodeStream(Native Method)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at android.graphics.BitmapFactory.decodeStream(BitmapFactory.java:621)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at android.graphics.BitmapFactory.decodeStream(BitmapFactory.java:693)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at android.graphics.drawable.BitmapDrawable.<init>(BitmapDrawable.java:157)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.sec.WallpaperWidget.setDefaultWallpaper(WallpaperWidget.java:108)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.sec.WallpaperWidget.setLockScreenWallpaper(WallpaperWidget.java:156)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.sec.WallpaperWidget.init(WallpaperWidget.java:203)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.sec.WallpaperWidget.<init>(WallpaperWidget.java:57)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.LockPatternKeyguardView.updateScreen(LockPatternKeyguardView.java:1298)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.LockPatternKeyguardView.<init>(LockPatternKeyguardView.java:721)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.LockPatternKeyguardViewProperties.createKeyguardView(LockPatternKeyguardViewProperties.java:52)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.KeyguardViewManager.show(KeyguardViewManager.java:229)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.KeyguardViewMediator.handleShow(KeyguardViewMediator.java:1407)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.KeyguardViewMediator.access$1400(KeyguardViewMediator.java:110)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.internal.policy.impl.KeyguardViewMediator$4.handleMessage(KeyguardViewMediator.java:1260)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at android.os.Handler.dispatchMessage(Handler.java:99)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at android.os.Looper.loop(Looper.java:137)

04-04 15:53:50.962 E/AndroidRuntime( 493):	at com.android.server.wm.WindowManagerService$PolicyThread.run(WindowManagerService.java:957)