I called Apple and they advised me (much to my chagrin) to uninstall from my library all the items that are synced like music, photos, podcasts, etc. In other words I checked unsync. I was then asked to add back some music a little at a time to see if the cover art returned. The first 200 or so albums came back fine and so I then brought in the rest. I found 4 errors related to files no longer on the MAC or which could not be found. I fixed those and everything went more smoothly. It was, however, a pain to wait for 2,500 songs to sync back to the phone.
Oddly enough after I was finished and it appeared that all the cover art had returned to each of the songs I found that when I looked at the iPhone itunes by ARTIST that one of the artists that had several albums & for which all of the songs had cover art was displaying as NOT having cover art. This is a small issue & seemed to be just one ARTIST, but when I trouble shooted I found even one file from this ARTIST (Chopra Center Meditations) triggered the problem even though the file was brand new. I asked a senior tech at Apple & he was puzzled. I sent him the MP3 & when he checked his iPhone he found he had the same problem. In other words this issue which is different from the original issue seems to be deeply imbedded as a problem in IOS 7.
If I ever get a solution I will post it here.
I am also having this problem on iPhone 4 IOS 7.0.4. I have uninstalled all my data and reinstalled but the problem still remains that the cover art does not actually match the song being played. The cover art is fine in the latest version of iTunes on my Macbook Pro OS X Mavericks, just isn't syncing properly to my iPhone. Haven't had time to do a complete reset of my iPhone as I would need an entire day reset to factory setting, then reinstall all the software patches and then re-install the 4,652 songs and this is my only phone . If anyone hears a solution please post here.