Sorry for the late reply, I was away for the weekend. I'm not at the computer where I tag my files, but I'll try and clear a couple of things up.
1) I'm using Picard version 1.4.1
2) I do not have a folder.jpg in the directory already.
3) My issue seems to be specific to this release (although it may happen with others, I just haven't noticed it).
4) I have Picard set to download only the "Front" (cover) art, and to name it "folder.jpg", and have specifically checked "Save only one front image as a separate file".
So whats happening is when I cluster and lookup the release, Picard tells me that their are 2 cover arts available. That's great, but I don't want Picard to download/save 2 images. I only want 1 cover art of the best quality. Right now, its downloading the better quality one and naming it "folder.jpg", then a lesser quality (smaller size) one and naming it "folder(1).jpg", obviously because the name is already taken.