iTunes likes to default music to iTunes format, in the M4A encoding, not MP3.
I just got my phone over the past weekend. I have like 16 songs on my phone now. The one that I downloaded from Green Label Music for Matt and Kim shows the artwork. And it's an MP3. I copied a CD in iTunes and added the artwork (because iTunes wasn't bright enough to do it for me) to all the tracks. Now in Windows 7, I can click the music in Windows Explorer and see artwork for all songs. (Including the M4A tracks) But copied to my Cupcake phone, only the MP3 song shows artwork. So is M4A partially supported? By that, I mean my phone will play the music, but not read all the tag information - such as the artwork?