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I wanted to solve this same issue recently. What I ended up doing was, after transferring books to the Nook Color, I used Windows Explorer to search my Books directory for *.jpg. This found every book cover thumbnail and it was a simple matter to select them all and delete them.
It doesn't look to me like the Nook Color needs the thumbnail .jpg's to display little thumbnail covers when browsing books. After deleting my .jpgs, most of my books still displayed covers. The ones that didn't display covers were ones that weren't displaying them anyway.
On a somewhat related note, there's apparently a known issue that causes some books not to display their covers. Some people have had some success fixing such books by messing around with Sigil and reconverting them and so on. I prefer to wait until B&N fixes it, since it seems to be a bug with how their firmware handles book covers.
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