If you create a File object that wraps the top-level directory you can call it's mkdirs() method to build all the needed directories. Something like:
// create a File object for the parent directory
File wallpaperDirectory = new File("/sdcard/Wallpaper/");
// have the object build the directory structure, if needed.
wallpaperDirectory.mkdirs();
// create a File object for the output file
File outputFile = new File(wallpaperDirectory, filename);
// now attach the OutputStream to the file object, instead of a String representation
FileOutputStream fos = new FileOutputStream(outputFile);
Note: It might be wise to use Environment.getExternalStorageDirectory() for getting the "SD Card" directory as this might change if a phone comes along which has something other than an SD Card (such as built-in flash, a'la the iPhone). Either way you should keep in mind that you need to check to make sure it's actually there as the SD Card may be removed.
UPDATE: Since API Level 4 (1.6) you'll also have to request the permission. Something like this (in the manifest) should work:
<uses-permission android:name="android.permission.WRITE_EXTERNAL_STORAGE" />