The file appearing on your desktop with the filename ~, commonly known as a tilde, is a backup of your Windows Address Book. It is appearing as a result of the April 2003 Cumulative Patch for Outlook Express (330994). The patch is installed for Outlook Express 5.5 or 6 in response to a vulnerability that could allow an attacker to run code of the attacker’s choice on a user’s machine. To exploit the vulnerability, an attacker would have to be able to cause Windows to open a specially constructed MHTML URL, either on a web site or included in an HTML email message.

Unfortunately, there is a bug in the patch.Whenever you make a change in your Windows Address Book file (*.wab file), Windows makes a backup of this file. Generally this backup is called username.wa~ , however after the patch is installed the backup gets renamed to just ~ instead and saved in the directory where you start your Outlook Express. Most of the time, people start Outlook Express from a shortcut on their desktop, so the backup file gets placed there. This is how the tilde (~) file arrives on your desktop.

Microsoft has indicated that it knows about this problem and has released a hotfix for this issue. Visit this link for more information about this problem and a solution for it.