This is a screenshot of window running a VM, so yes it is a window running a whole desktop. The top window decoration, menu bar, and the very bottom panel are not part of the old desktop, but rather from the modern host system.

I agree though, it is confusing. Main problem (and I remember this) is that this is Gnome with Enlightenment as a wm, and Enlightenment had aspirations to be more than a wm. So there's some duplication of effort there, and no integration/communication between the two projects (Gnome in the next version used sawfish/sawmill as wm, which was more coordinated with Gnome).

Enlightenment has/had its own toolkit, which you can see here in the DOX window, which is different from Gtk. Enlightenment also has a bunch of widgets, like the top bar and the stuff in the bottom corners, which are non-Gnome and clash with and are on top of the Gnome panel. The desktop icons are also zero pixels under the Enlightenment top bar, which suggest the people responsible weren't coordinating at all.