you should be on iTunes 10.5 (141) you'll be able to see which version you are on when you go to itunes>about iTunes when you're focused on iTunes. 🙂
run software update to make sure you're on the latest build, als0 make sure that your itunes folder is the one you think it is. There shouldn't be an album artwork folder (I believe) as the album artwork is stored within the files themselves now.
What I would do, is select the right folder you want your itunes library in. Then select "Copy files to iTunes Media folder when adding to library" and I also have "keep itunes media folder organized".
this is when you're on itunes, select iTunes>preferences>advanced.
make sure your itunes folder is being pointed at.
example:
doing this will order everything the way it needs to be for iTunes to work correctly... hit ok and then let itunes transfer all the files over. Again, there isn't an Album Artwork Folder in my itunes folder anymore, mainly because I believe it's done another way.