No, you are right about consolidating the library, but you should copy the whole folder, itunes will appear instantly exactly as you left it. I don't see how there could a method for "better performance".
Starting over with fresh iTunes libraries means not having to deal again with the iTunes cache etc, which may have collected over 3 years. Even if you delete a file, the data about it will still be there, including old artwork etc which means more bloat.
Also, if you reimport only the iTunes Music folder and click consolidate, it will organize your iTunes according to ID3 tags automatically so it will settle everything in correct artist/album folders. If you have movies, they will automatically be put into Movies tab. The same goes for apps, audiobooks and podcasts. iTunes will cache only the things in your iTunes library, so no old stuff and no extra bloat. I do this all the time and it works great.
But, if you absolutely must have the playlists and the old iTunes preference files then sure, only replace iTunes folders with all that stuff in it.
I'm not sure, but I think if you do a consolidate library, you might lose all the "get album artwork" that you got from iTunes.
Somebody correct me if I'm wrong, but if you've spent a lot of time getting artwork from iTunes, you might lose it doing this since the artwork isn't embedded in the actual file and linked by iTunes instead.
About the artwork. You are right, if you use Get Album Artwork thing it will not embed it into the file. There is a simple way around that. Once you get the artwork from that option, choose the file with the artwork, click Get Info, click on the Artwork tab and drag out the BMP image somewhere to another folder or desktop. Click OK, then click "Clear Downloaded Artwork". After that, select the whole album or a specific song, right click them all and click Get Info again. Drag and drop the artwork inside and click consolidate. This will permanently embed the artwork into the files and they will not be lost if you move the files into another library or if you open with another player.