ID3 tag version, album art

I just received my M3 (which is great, don't hesitate to get one), but it seems it doesn't recognize my ID3 tags, which are in version 2.4 (the default with MusicBrainz). Is the M3 supposed to read ID3v2.4 tags ?

If I have to reencode all my mp3 library, does the M3 support UTF-16 strings or should I stick to ISO-8859-1 ?

Also, how does the M3 get the album art ? Should I embed the images in the tags ? Can I simply put a link in the tags ? Is there a special filename that it looks for in the mp3s directory ?