I can confirm this bug. I've seen it going back to iTunes 10.x, and it persits in iTunes 11. I've got different combinations of configurations (some machines running OSX SL & iTunes 11, some running OSX ML & iTunes 11, etc), and I have to say, in recent releases, I've seen bugs like this popping up in nearly every step when I'm trying to do something. Like manually adding a few movies to my iPad2 (through iTunes 11), and having the filename not display properly on the iPad. So then I go spend 30min researching that online. Eventually rebooting the iPad fixed it. Bottom line is though, no computer company is perfect, and although Apple always seems to have the most polished look & feel, they have just as many bugs underneath as the next guy. I think people get upset (me included) because they've paid a premium for their Apple products, and they expect there to be no problems. This will never be true, though, so we just need to manage our expectations (me included).
I can confirm my workaround/fix for this issue though, and it was fairly simple:
I manually added 8 movies to my iPad, and none would individually let me add artwork. So I just selected all of them, and then right-click > get info. It would let me add artwork for multiple items. So I added the same jpg to all of them, and then magically after that, I could go into each one and edit, adding the correct jpg and deleting the first jpg. Hope this works for you if you're having this issue.
Seems all the tech companies are on a bit of a steeper development curve right now, and having some growing pains with their rapid releases and high competition for this emergent mobile market. Hopefully things settle a bit soon, and they can spend more time smoothing out these UX bugs on each release