"I remember being told somewhere that AP do not cover fragile items.  Is this correct?"

AP do not provide a fragile service per se.  But they do cover for fragile items broken in transit, if they accept the packaging was adequate.   The fact that you do take photos is great, as you then have proof of your packaging.  

I do know from an experience years ago, that AP will try to worm their way out of paying compensation any way they can.  Having those photos will get the matter sorted in the short term rather than a protracted argument. 

I take 4 'stage' packaging photos, particularly when it comes to multiple items being sent.  1. Items bubble wrapped, 2. Each item wrapped in its own cardboard, 3. Items placed in final box with shredded paper all round, 4. The finished box.  These are emailed through to the buyer before posting, so the buyer knows I've taken every care to ensure their items arrive safely.

Fortunately, I don't have breakages (I consider my packaging to be AustPost proof), but it's nice to have that back-up should the unthinkable happen.