Opened in Synology DSM the Media Server>DMA Compatibilty > somewhere below I found the Device list and in there device XMBC. Changed the profile from XMBC to Default Profile With Original Cover, restarted the app and indeed, cover-art is shown in HighRes. Phew!
Mike you are a hero! How can normal mortals ever find such details? I hope the guys will resolve this bug in v5.2