Lost all album art/cover art from my iTunes purchase after update iOS 6.0.1 , any idea how to get it back ?

Most simple approach would be to delete and redownload them. but before you do that try a rest: Simultaneously hold down the Home and On buttons until the iPad shuts down. Ignore the off slider if it appears. Once shut down is complete, turn the iPad back on using the On button. In some cases it also helps to double click the Home button and close all apps from the tray before doing the reset.

The album art is fine in iTunes but when I transfer it to my iPhone it is all messed up. I end up with the wrong album art on some songs and no album art on others! This has to be a bug.

One user issue does not a bug make. You also might want to post your own thread and in the correct forum. The issue you are describing is not quite the same as the OPs.

Actually, my problem is identical to the OPs, I was just adding more details. Your "solution" didn't work for me.