I had that same "Warning(prcgen): Cover not specified" when I went and converted Elizabeth Moon's Sheepfarmer's Daughter from the Baen Free Library (in case you were wondering why, this adds chapter marks which don't exist in the regular .prc version).
But it went away once I edited the OPF to link in the cover image the way that kindlegen expects to see it, according to "Cover Image Guideline #1" on page 11 of the
Amazon Kindle Publishing Guidelines (3 meg PDF).
Incidentally, you'll have to edit any other entries you have for specifying the cover image and only use the Kindle approved method, otherwise it'll show up twice in the file. Same as for the Table of Contents.
Incidentally, on the Mac, at least, kindlegen v1.1 now creates horribly bloated files, roughly twice the size of the ones that v1.0 makes from the same source, even on the tightest compression settings.
I don't know whether it's a bug in this build, or something to do with how it now accepts higher-res images in anticipation of the new audio/video "enhanced" Kindle format, but it's very annoying.