I have curated huge set of songs with proper ID3 tags and added Album art manually to them using MP3Tag tool. While they appear in Album selection page, I don't see them in the lock screen while playing. Do I need to embed the Artist image to MP3 file and mark it as Artist image? ID3v2 Embedded Image Extension
The artist image setting shown in Nate's answer is >only< applicable when playing music in the Music & Videos player (i.e. Xbox Music). This setting gives permission to fetch an image of the currently playing >artist< from Xbox Music and display it on your lock screen. It does not look at the art embedded in the file for the purpose of the lock screen, and if there is no artist imagery available then it shows nothing.
So what you want would need to be done by an app. I don't know of one which does this, though.
Windows Phone does not show album art in the lock screen, it shows an image of the artist. This image is automatically added from the XBOX Cloud. You can manually set images and album art using the MPA Tool but either way it will not show the album art on the lock screen.
There may be an app out there which does this but you will have to play the music through that app instead of XBOX/Zune.
Album art won't show in lockscreen, the option in settings to show artist when playing music will show you a picture of the artist if it is in the zune database. It doesn't work very well as sometimes I don't get the lockscreen picture coming up even with a popular artist. I can't see what phone you have but if you are WP8 try this
In the lock screen settings page, there is a checkbox for "Show artist when playing music". You need to enable it, as I believe it's off by default.
As far as I know, if your ID3 tags and art show up correctly in the Music/Video hub, they should also work on the lock screen after enabling it.
What it looks like on my phone
The default music app in windows phone shows artist image while your music is in sync with xbox music(provided xbox music is available in your country region), so if not available it shows a solid grey background while playing music. You can make your lockscreen appear while playing music by switching off "show artist when playing music" in lockscreen settings.
You could use the Nokia MixRadio app,this is a cool app, which makes the artist image offline once you play a song while connected to internet. Make sure your artist name is single not Like "xxx ft yyy" just "xxx" .