The Nook Touch does not support using external thumbnails as cover images. Only the original Nook that had two screens worked this way.
The Nook Touch caches the cover image. So if you put a book on that doesn't display a cover properly then reconvert and resend it won't use the new cover. You need to restart the device for it to re-read the covers from the files. Full off then back on not putting it into sleep mode.
See
this for a detailed technical explanation about the issue and how you can fix it by editing the EPUB itself.