Always read the "fine print" under the permissions.
"Services that cost you money" is a big red flag, but this is applies to anything that can enter in a phone number or pre-populate a text message for you. At the same time, your wallpaper app should do neither.
"Storage" is another one. Lots of apps store settings or data on the SD card, but it still shows up in red, so is it really a problem?
Maybe you downloaded a Flickr app, why does that app need access to your Personal Information (contacts)? Maybe the app lets you set a picture as the icon of a contact, it has to read and modify your contacts info to do this.
My point is, its not always clear-cut as to why the app needs the data it requests. I wish google would make it a little clearer (and maybe force the developer to include a little statement as to why they need it). In the end, if you're worried, just don't download the app. Life won't end if you can't download your 23rd fart app.