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Originally Posted by SMHarman
Found a thread on ipodlounge that said the same. The aac format includes the image. So if your ipod is full, you can delete the images from itunes and create space.
Found it was due to itunes being a bit funny about the new server based folder location, closing down and restarting itunes fixed it though - phew.
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Are you using a network drive as your iTunes music library location or running a copy of iTunes on the server, btw? The latter is the best option (iTunes' streaming is very good).