I propose we make the difference between these two fields a bit more clear.
What happens is the user thinks that they are to paste the URL or embed code into the correct field (this part is good), then click "upload" after they're done (this is for the thumbnail, not the video URL).
They, they get an error message saying the site was not able to upload their file and they think something has gone wrong.
So let's make the two fields look clearly separate.
Yes please - this issue got me running my head into a wall earlier today.