Over on Steve Fay's site 'Hildene' has posted a link to some obituaries of  Alex Steinweiss who has been widely credited with 'inventing' or originating the ilustrated record cover/sleeve, with dates variously given as 1938 to 1940. The NY Times version here http://www.nytimes.com/2011/07/20/business/media/alex-steinweiss-originator-of-artistic-album-covers-dies-at-94.html?_r=2&hpw.

Several books have been published over the last 15 years or so with a similar theme and claiming that all records before he came along were issued in generic paper or card sleeves. There has also been a (very expensive) book devoted to his artwork http://www.taschen.com/pages/en/catalogue/design/all/05039/facts.alex_steinweiss_the_inventor_of_the_modern_album_cover.htm

In fact he started working for CBS/Columbia records in late 1939 and his first covers appeared sometime during 1940. Unfortunately for the story, by then, during 1938 and 39 Decca had already issued over 100 illustrated record covers for a variety of box sets, including Bing on Cowboy Songs on album 69. Jon Oye has a superb illustration on his site. This is the link - http://2.bp.blogspot.com/-R4HISqWsH4Y/TfkYlW6IatI/AAAAAAAAAa0/2nQLEb0C9sA/s1600/1+cowboy.jpg

But even then illustrated covers were not new - Jack Kapp, who later ran Decca but then running Brunswick, had been responsible for an issue of 'Showboat' with an illustrated cover and interrior notes and photos of the performers in 1932, and even earlier, from 1917, English HMV had started a long series of opera and operetta box sets with coloured individual box covers. I personally have an album dating from the mid 1920s of six twelve inch 78s in a stout library box embossed with a gold title on the spine and with front illustration and an internal illustrated booklet. Steinweiss may have been very influential in developing the trend, certainly, but categorically not the originator.

A very interesting illustrated lecture on the subject was given at the Association for Recorded Sound Collections conference in May 2010 and a recording can be downloaded together with the Powerpoint illustrations. Look for 'Mike Biel - Illustrated Record Album Covers Before Steinweiss' on May 22 at this link  http://www.arsc-audio.org/conference/audio2010/index.html  It includes several covers of sets either exclusively or partly of Bing.