Are you, perchance, using 1.5.2 and not 1.5.1?
I have seen rumor that the "mods/" top-level folder is unneeded, so instead of:
/mods/%modname%/textures/blocks/%block.png%
it's:
/%modname%/textures/blocks/%block.png%
But I haven't verified that yet myself.
So the complete directory would be 'forge/mcp/jars/%MODNAME%/textures/items/%ITEMNAME%/'
Is the correct? And if so, it's still not working.
Oh, and yes, I'm using 1.5.2
No, it's 'forge/mcp/src/minecraft/mods/%MODNAME%/textures/items/%ITEMNAME%/'