EDIT: Could it be that the c200 doesn't support album art at all?
The c200 does support album art and I'm using a 40x40 picture in my own WPS (I was just playing around with it actually). This size is really the minimum, I wouldn't make it any smaller. If there is text, it is barely readable - album art at that size has more of a decorative effect.
%Cl|1|1|s20|s20|
What's the "s" doing there in your code? The album art wiki doesn't know it - if I remember correctly it was used for resizing which is not in the official builds yet (the patch didn't meet Rockbox standards). There are only alignment markers you can use in this place (l,c,r or t,c,b respectively) which define the position if the picture is smaller than your bounding box and are not even necessary - I would try without and I think you want 40x40 for it in the end, looking at the margin.