You can control the desktop icon spacing by right clicking a blank area of the desktop and choosing Properties. On the Appearance tab, use the Item drop down box to select Icon Spacing (Horizontal) or Icon Spacing (Vertical) and toggle the Size. Click the Apply button.

To do this via the registry, navigate to:

HKEY_CURRENT_USER\Control Panel\Desktop

Edit IconSpacing, a type REG_SZ value, for the horizontal setting. The default for small icons is 131 and for large icons is 147.

Edit IconVerticalSpacing, a type REG_SZ value. The small icon default is 75 and large icon default is 91.

You can also set these in batch by using REG or by importing a .REG file (regedit /s icon.reg), where icon.reg might contain:

<b>
REGEDIT4

\[HKEY_CURRENT_USER\Control Panel\Desktop\]
"IconSpacing"="100"
"IconVerticalSpacing"="70"
</b>