If you've previously copied the songs to your iPod Touch and then updated the cover art on your computer, I found that doesn't synch. You have to delete the songs off your iPod and copy the updated songs from your computer that has the art.
Also, cover flow will appear to work incorrectly if you do not have the art in every song on the album.
I have found this,
http://www.versiontracker.com/dyn/moreinfo/macosx/10904402, to be monumentally helpful.