dazzle, I've just checked this, and when windows media player creates folder.jpg, it makes them hidden, system files.
Go into your control panel and open Folder Options.
Click on the view tab
Scroll down the list of tickbox options you see there.
Select "Show hidden files and folders"
Untick "Hide protected operating system files", answer "Yes" to the warning dialogue that follows.
OK your way back to the desktop.
Now, go check again for your folder.jpg file, let us know if you find it.
-marko.