Yes you are correct if you want pictures for your folders you place a folder.jpg in the folder. However when you have 300+ movies you don’t want to create 300+ folders and then have to open the folder to access the movie.
There is no issue with how I have structured my movie and .jpeg cover art files, the issue is the implementation of the Twonky Media Server in the ShareSpace.
To prove this I have Twonky version 6 loaded on my PC with exactly the same file structure as my ShareSpace and it works perfectly.