Hey everyone, thank god i found a solution and it worked for me! and currently am running IOS 5.1.1
This is what i did..
1) Go to your device and under summary, tick 'Sync only ticked music and video'
2) Head over to your Library and untick all the songs.
3) Sync your iphone so that the there will be NO MUSIC left in your iphe library.
4) Go back to your Library Select all the songs and 'Right Click' --> Select 'Convert ID3 Tags' --> In the window that pops up, Tick 'ID3 Tag version' and Select ' v2.4' from the drop down box and Press 'ok'. This takes awhile depending on your library size.
(When you convert ID3 tags, the album art for some songs will disapper, mainly the songs with lyrics in my case.. So you need to add them manually.
5) Now grab your iphone and do a 'complete factory reset.'
6) Plug it to itunes (make sure you have ticked 'sync only ticked music and....' before doing anything') and go to your library and tick only 10 - 20 songs.
7) Sync the selected onces to your iphone.
8) Disconnect the wire and open the music library in your phone and the album art will still NOT appear.
9) Reconnect the phone back to itunes and this time select another 10 - 20 songs and sync the phone.
10) This time the album art will appear to the songs that you added in the above step (for tyhe second time) but not for the songs that you added first time. Therefore go back to library and untick the songs that the album art is NOT present in you iphone and sync again so that the only songs with the album arts will present in the iphone.
11) Reconnect the iphone and add another few songs (not all) and the album art for the those songs will appear in your iphone! WIN!
12) If step 11 is successful for you its all good now. Go to your library and select all the music and sync the iphone and BOOM all the album arts will be there!!
This all sounds bonkers but did worked for me! and for my mates ipod touch, so i hope it will work for you guys as well.
Peaceee