Sorry for not communicating my situation more clearly. I like your layout of the issue.
Currently, MC stores my cover art as folder.jpg files next to my 100% FLAC library.
On sync, I sync my 4/5 star songs to a folder, converting them to MP3 with the option to add cover art to the tags enabled. At the point where MC copies folder.jpg into the MP3 tags, I would like it resized. My player is the iPhone and it handles the cover art beautifully (even at 1200x1200). The problem is that these files average 1MB. On 4,000 songs (what I currently sync), that means 4GB is wasted for all this cover art.
In MC, only ONE copy of each cover art is stored (folder.jpg). On sync, since the iPhone and other devices aren't as good at handling shared cover art, it makes sense to just embed the cover art in each song. If the cover art was 100KB or less (Amazon, other sites, etc.) I wouldn't mind the impact. That would be a tenth the space: 400MB...likely even less. As you can see, on a 32GB flash based iPhone (or my previous 8GB iPhone!) this makes a gigantic impact.
When I sync, I look at each MP3 quality increase as an order of magnitude increase in size. Adding cover art requires as much space as jumping to extreme from high or normal.
Ultimately, if the cover art could be downsized on the fly, then my device would be happy with an extra 3 - 4 GB for video while not diminishing the value I receive from having this HQ cover art. It is nice when viewing on HD video displays which can almost show pixel for pixel.
Thanks!