One of the best enhancement tools to reduce desktop icon clutter; Stardock Fences. Stardock Fences are now not a free software it worth’s $10. But you can still download one of its free version that is, Fences 1.0 release candidate version. With Fences you can arrange your desktop icons into categories and it will give your desktop a neat, eye candy look. Also you can create your own custom Fences by dragging a square using right mouse button.
The pro version offers a host of added features that auto arrange icons by type, create Fences like recent, most used etc and further Fence customizable options.
Alternate Download Locations for Fences 1.0