I was doing the same thing you were doing. WMC and Arcsoft TMT, and I can tell you I would not go back. This is one program that does every thing I need it to do. With that said you do have to do some configuration. Like turn on hard Hardware Acceleration, this made a huge difference on video quality on both BlueRay and DVD. I wonder if your PC is not fast enough. What are the specs of your PC and graphic card? Also what are you audio settings. I found that can make a difference.
Cant help you per say with the HD DVD cover art, but have you tried manually getting the movie info and then selecting the cover art. To do that all you have to do is go to your movie list, find the movie and right click on it a select "get movie info" The other option is to use your own cover art. IE Down load the cover art and insert it.
For the BlueRay, are you playing from disc or hard drive? Are all Bluerays like this or are just some?