[Karellen]

Yep I think everyone seems to be in agreement that I need to dump the nfo files and that is the cause of the problem (well my fault for exporting them too early).

Yes, get rid of them. I think you used the wrong export when you created the folders. You should have used item 3.4... https://kodi.wiki/view/Import-export_lib...lders_only

One question about the artist info folder: Once my library is all up and working, if I were to add a new artist , does that mean I have to export the files to the artist info folder again or does it update itself automatically?

It does not update automatically. The folder will be created when running either of the following Exports:
1. 3.2 To library folders- Will create the folder and, depending on the options you select, will export artwork and nfo files
2. 3.4 Artist folders only Will create an empty Artist folder so you can create your own nfo file and/or artwork to scan into Kodi.

So where does it store fanart and images its scrapes online??

It is stored in the thumbnail cache located in your Userdata (wiki) folder.

Have a look into Artwork Beef add-on which can be setup download images to your local folders... https://forum.kodi.tv/showthread.php?tid=258886

If you are using local artwork then read the wiki page here... https://kodi.wiki/view/Music_artwork