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The Touch displays the covers found within the ePub file itself. The problem is that often (possibly for copyright / licensing reasons) ePubs do NOT contain the same cover as a paperback edition did.
Calibre will display a separate cover for a book that is stores in it's database as cover.jpg.
When you do an ePub to ePub conversion the cover.jpg gets added to the ePub and will be transferred to the Kobo for it to display.
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