Thanks for the reply, there's a lot to digest.
Album art is in a sep. folder from the music files but within iTunes folder. The file names are just letters, numbers and not viewable.
I believe that Melco uses their own software (Linux based) for importing files built in to the OS and is menu driven. Their manual is pretty simplified and they spend more time talking about importing from a CD than anything else. they do mention drag and drop of files from computer to the Melco over the network but it's so simplified I figure they must be leaving things out. Also, you can use a USB HDD as an import source as well.
On the third question re: how Melco handles cover art, I don't have a real clue. There's mention of it re: FLAC files and a blurb re: cover art transferable but I'm not sure in what context they refer.
I have seen mention recently of the "dougscripts" for cover art retrieval. Thanks for the tip. Sine I don't own a server/player system as yet I can only guess at what will/won't work. I am hoping for a Melco owner reply!