Yes, I JUST upgraded to iTunes 11 and NOW I have the same problem.
Artwork appears in my itunes but NOT on my phone. ANYONE know a fix for this?
Also, dragging and dropping art work to individual songs within my phone (when it is connected to itunes) actually shows the artwork IS THERE. But when I play the song on my ipod the art is MISSING.
Is this a BUG?
I wish I had an answer for you, but I don't.
However, I thought I would mention that I have a related problem that I describe here: https://discussions.apple.com/message/20540385#20540385). (The cause was different, but the outcome is the same). You may wish to follow that discussion in case someone has anything to suggest there.