I want to ensure cover art is stored in each music folder as Folder.jpg so that Windows Media Centre picks it up. When I use Tagsources option to find cover art and then proceed to download for all the album tracks I also want the file to be saved in the directory as folder.jpg - can this be done?

Two ways of doing it:
Either while you edit an album and have the albumart already in the file: press Alt-T to open the extended tag-dialogue. THere press the save button that is next to the albumart. THis will open a "save file" dialogue already open in the album path as well as suggesting folder.jpg as name. You only have to press OK then.

The second way, perhaps because you cannot remember whether you have saved the albumart and want to do it now for a number of albums:
Create an action of the type "Export Albumart", enter "folder.jpg" as filename, save the action.
Select all the albums which should get an folder.jpg extracted and start the action.

if you have embedded art in MP3 files, & have your tracks stored in album subfolders, then WMP 12 will create a (hidden) folder.jpg automaically once you play a track from that folder. it also auto-create albumart ( amll & large) .jpgs as hidden files. This may also work for wmp11 - not sure.

if you mix albums within the same folder, then windows players are easily confused... I learned that one the hard way !