I finally got the Xbox and PS3 and the WD World Edition II Twonky to show cover art. Here is what I had to do.
Place all movies into thier own folder by name of the movie. If you download filetofolder it will help you do this.
Next place the cover are in the folder as folder.jpg
Now here is the part that I kept over looking and finally got everything to work
You have to log into the admin console on the WD World Edition II and go into the media server go to the Maintenance link and click the Rebuild Database. This will wipe out all the old meta data and your cover art will reindex.
This worked for both the Xbox 360 and the PS3
Note: if you are still populating your media server before you place your movie file on the drive make the directory and place the cover art into the directory first before the movie is copied there. Otherwise you have to go in and Rebuild the database to pickup the cover art.
Hope this helps.