Go into options and select file location. Then post here what you see under Cover Art.
One slight modification to the process I mentioned above might be required, depending on whether the cover art or other files are in the same folders as your flacs. In fact I'll repost the whole lot with the modification
Select all your files that you wish to move.
Go to Library tools -> Rename,Move, & Copy files
In the dialog box, select Update database to point to new location (no filename rename, move, or copy) from the top left drop-down menu.
Choose the third checkbox (find/replace)
Under find, put in C:\
Under Replace, put in E:\
Then you click ok. Now MC thinks all your files are on the E drive. They aren't... yet.
Next go into Windows Explorer copy your Music folder from the C:\ drive to the same level in the E:\ drive.
Now all your files will start to be copied from the C to the E drive, and will continue to keep the same directory substructure. e.g. C:\Music\Vanilla Ice\Ice-Ice, Baby\I'm so cool.flac will move to E:\Music\Vanilla Ice\Ice-Ice, Baby\I'm so cool.flac as far as MC is concerned.
Once you check all works well, you may delete the music from the C drive. Best to do this as it gives you a backup too in case something goes wrong during the move.