Does anyone know of a fix (other than to remove embedded album art)?

Here are the results of a brief test in Windows XP Media Center Edition 2005:

* an MP3 in the My Music folder, with no embedded art, will display the generic blue headphones icon.

* an MP3 in the My Music folder, with embedded art, will display a black box.

* an MP3 in the My Music folder within an artist | album folder structure, with embedded art plus several jpeg files in the album folder: AlbumArtSmall.jpg, Folder.jpg and a couple of AlbumArt_{2DE1A9blahblah}, shows as a black box.

* an MP3 in the My Music folder within an artist | album folder structure, with no embedded art but with folder.jpg and AlbumArtSmall.jpg will display album art. My test indicates that folder.jpg is used by MCE.

I looked in IE7's add-ons and WMP is listed as an enabled add-on.

I'm not currently running WinXP MCE 2005, but a quick Google search revealed that your problem is caused by patches to IE7. For more information, search on Google and check out the link below.

http://thegreenbutton.com/forums/thread/164445.aspx

Good luck!