I'm having major cover art problems as well. I have the latest MC (151) and I keep all my images as \\htpc\c\music\images\artist - album.jpg and I have "include in tags" also checked because I want to be able to copy the mp3's to my CarPC where I need the tag image.
In MC, tracks that have images mostly say "Inside File" but if I hover the mouse over them, some don't show any image. Nor does it appear in the Now Playing vis. I remove art from the track, then do a Quick Find and it finds the image in the designated location and for a few seconds will display the full pathname of the image file. Then it usually changes to "Inside File" but once in a while, it just says "jpg" with no filepath or name. Deleting and re-adding sometimes works but not always!???
I am also using MusicLobby which is a "shell" for MC and I didn't know that it could only use older versions of MC with it. First I need to get MC running right by itself.