The conspiracy nut wants me to believe that this is Apple's way of making sure you use iTunes for everything.

seems to be an iOS 8 issue.. i just updated my iPhone 4S to iOS 8.1 from 7.1.1 and my album art/thumbnails are missing from my Playlist folders in the Music app/iPod.. I Googled for a solution and found a huge thread on Apple.com with people complaining about all their art (for music, tv shows, movies) missing!

on another note, does MediaMonkey support Playlist folders yet??

Latest build seems to have fixed this.

I see the same, tracked as http://www.ventismedia.com/mantis/view.php?id=12229

Further info-
After problem occurs, I can look at the "Get Info" applet in iTunes and it shows the artwork there.

MediaMonkey 4.1.5.1717 RC, Windows 8.1 in VMware Fusion VM, 4 cores, 8GB RAM, Portable Installation

iTunes 11.4(18), 64-Bit OSX Mavericks 10.9.5 (used for app sync & backup only)

Background & Issue:
I've been using portable in a VM for quite some time with success. Recently got iPhone 6 on IOS 8.0.2. Installed 1717RC on top of existing portable installation. Able to sync multiple playlists consisting of about 750 songs without issue. Open Music app, all songs and playlists present as expected, artwork is present.

As soon as I perform an app sync in iTunes, ALL artwork is wiped out.

I have performed the same steps several times with the same results every time. I have tested running the portable install in a Windows 7 VM followed by an app sync - same results.