Which file used by XDM specifies the default wallpaper?

 The file that specifies the default wallpaper for XDM is /etc/X11/xdm/Xsetup. XDM is a display manager for the X Window System that provides a graphical login screen and manages user sessions. The /etc/X11/xdm/Xsetup file is executed when XDM starts the X server and before any user login or session starts. This file can be used to configure the X server, set X resources, and perform any other system-wide setup tasks, such as setting the wallpaper. To set the wallpaper, one can use a command like qiv -z /usr/local/share/backgrounds/wallpaper.jpg in the /etc/X11/xdm/Xsetup file, where qiv is an image viewer and /usr/local/share/backgrounds/wallpaper.jpg is the path to the desired wallpaper image1.

The other options are not correct/etc/X11/xdm.conf is the configuration file for XDM, which specifies how XDM should behave, such as the access control, the login window, and the session types2/etc/X11/xdm/Defaults is the directory where the default XDM configuration files are stored, such as Xresources, Xsession, and Xwilling2. /etc/X11/defaults.conf is not a valid file or directory related to XDM or X Window System. References:

XDM - ArchWiki

Configuring XDM - Linux Documentation Project