I don't think that is copying to a texture though - its actually a feature of the video card known as overlay. I know most DVD players use it, as did my old Win/TV card (just do the aforementioned screenshot). It does colorkey, but without copying the windows desktop to a texture. The bad graphics quality is probably due to newer versions of windows trying to add a funky shadow behind the desktop text and hence corrupting the colour.
It seems OpenGL will do it via the use of (yet more

) extensions. There's a bit on how to do it here:
but this particular article seems to deal only with overlaying one openGL window on another - not overlaying it on a standard window or desktop. Still, we can rest assured that if there was a way, ATI will have half-implemented it and it will only work on NVidia cards
