I use PuTTY to connect to my RaspyFi, so the first thing is to connect and log in, then do the following:

sudo apt-get update --fix-missing
sudo apt-get install lighttpd
(will fail to start as the RaspyFi web server is already listening on port 80)
sudo nano /etc/lighttpd/lighttpd.conf
server.document-root = "/mnt"
server.port = 8080
add this: server.dir-listing = "enable"
Ctrl-X to exit, Y to save, enter to commit.

Go to mpad on your ipad and change the settings.
Fetch local cover art --> On
Fetch from Amazon --> Off
Fetch from Discogs --> Off

Configure the active RaspyFi server in Mpad:
Local Cover Art:
URL --> http://192.168.1.29:8080 (change the IP to be that of your RaspyFi)
Cover filename --> folder.jpg (this is case sensitive. Mpad will look for this filename in each of the folders on your music server)
Click on Save and you're done.

To test it browse for any album in Mpad and click on "Cover Wizard". You should see your covers being retrieved from the local store. A bonus of this is that you can also browse your entire music collection from a web browser on your computer. just point your browser at http://your.ip.address.here:8080

I hope someone finds this useful.