I have some albums with a "folder.jpg" set as album art, mainly because that file was present when the files were imported, and i was too lazy to add album art via MC.
Now, if i move the files, two things happen: first, the directory containing the "folder.jpg" file is left behind silently (no warning whatsoever), and the "folder.jpg" file isn't copied to the new location, and second, the tracks in the new location still reference to a image file named "folder.jpg", which isn't present in the new directory, thus "breaking" album art functionality.
This has been MC's behaviour since "folder.jpg" functionality has been integrated into MC a long time ago, AFAIK. I think it's high time to improve the way MC handles these files. I'm currently using the "all album art in a central location"-approach, but using folder.jpg files has a lot of advantages. In its current form, MC's folder.jpg support is nearly unusable, because i have to manually copy the files for each album.