Lex, I'm concluding that you are not reading all the posts in this thread. Scott already ran "get album artwork" and now does NOT know which ones where assigned downloaded album art - both correct and incorrect - because the SMART playlist no longer shows them, only the ones where no artwork was found. You likely have discovered that you can identify which tracks have downloaded artwork as it will be displayed when you right click on them. My suggestion to Scott was to simply erase all downloaded artwork as it will preserve the artwork he had added manually which is pretty much most of his library, and it will remove the artwork Apple fetched for him. Now he can start over and do it your way.
I figured out why you strongly believe iTunes does embed the artwork. I did clear all artwork from a couple albums, double-checked that it was all erased, and used "get album artwork" to fetch the images. In Mountain Lion, the file seems to have the artwork embedded as it will show up when you select "get info" on the actual file. Also, it will now be displayed on all your iDevices when you manually transfer the songs which is new and awesome.
Nevertheless, it is not embedded. If you have VLC on your system, right click the mp3 file and open it with VLC. Select metadata info and there is NO artwork showing. If this is still not convincing to you, copy two mp3s, one with manually added/embedded artwork, the other one with fetched by Apple artwork (selecting all the tracks in an album), and transfer it to another computer and import it into iTunes or whatever music player. Then you will see that only one with the manually added artwork has it truly embedded.
My point: Apple seems to have improved their artwork management so it is shown almost system-wide and on all devices which is great. But if you want to transfer your music files to another system the artwork is not preserved.
As for me, I am very glad that you pointed out that Apple-fetched artwork is now truly usable and I will be using it when adding new music to my library as it is by far the easiest and quickest way to get it.
Take care.