I can see FLAC files just fine, how are you using WD2Go? And the artwork will only be seen if it has been embed to the song, like if you were playing it from a DLNA server.
I have a Sony Ericsson Xperia Mini Pro (SK17i) on Android 2.3.4, and like many other files, I could not see what my phone didn’t naturally play off the box. I had similar problems with video files until I installed RockPlayer and ARCMedia, so I’d dare to say the same as well on your case.
What music player do you have on your phone? With PowerAMP I can play FLAC files using WD2go.