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There are a ton of mp3 encoders floating around the internet (search Google or this forum for some names). You can also use Windows Media Player on your PC to encode to mp3. The bitrate you choose will depend on how you are going to listen to the music and how much you care about quality and size. I encode all my mp3s to 256 since I attach my Axim to my Alpine headunit in my car and dont want to loose bass and treble. 128 is a good balance between size and quality.
the only way I know of getting cover art is to rip a CD on my PC using Windows Media Player. I forget what the name of the database is but there is a feature in Media Player that will connect to this database and update the playlist with the names of the songs, artist, and cover art. After ripping the CD (or selected songs), move the folder that was created containing all the songs to your Axim's SD card. When you play those songs the cover art will be displayed.
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