I just updated my MC17 installation to the latest version.
Folder.jpg is no longer being recognized for videos, as was described above. All my options are set properly and an MC16 installation on the same PC finds and uses the folder.jpg coverart with no problem.
The only way for me to get the cover art into MC17 is to manually import it for each movie, pointing each one to the preexisting folder.jpg.
The noteworthy thing is that when I do this, MC17 generates a NEW file for each movie, called [videoname].jpg
So if I have "Alien" in a folder with its sidecar and folder.jpg coverart, I import that into MC17 and it processes the sidecar but I get no coverart. I then manually point it to folder.jpg, at which point it generates Alien.jpg and now I have two coverart files.
This does not seem to be consistent with the behavior Matt just described, or appropriate.