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There are a number of posts on the Amazon forum about this issue.
I've never used the lock screen cover picture option on my Kindle, but out of curiosity, I just enabled as a test. I found that if the book last opened before the Kindle went into sleep mode was a Kindle-format book (from the public library), the lock screen would display its cover. But if the book last opened was a 'document' (a non-Kindle format document that I transferred using the 'send to kindle' function), the lock screen image was just one of the generic images that came with Kindle, and there was a note at the bottom of the screen saying 'What you are reading doesn't have a cover'.
So my suspicion is that when epub documents are transferred to Kindle, Amazon treats them as generic documents rather than books, and therefore doesn't recognize the cover.
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