Processes in Microsoft 365 for setting up Office apps, redeeming product keys, and activating licenses.
Hello Rax,
We appreciate you spent precious time doing tests and sharing the detailed information with us.
We deeply understand the issue has affected your daily work and feel very sorry about it.
Since the issue only happens in a specific video, you don't want to re-upload the video, it seems like your colleagues also encounter the same error 'custom image uploaded failed' when trying to upload customized thumbnail for the video. Considering you also tried different image formats, in this situation, it may need to check the issue from back end for further investigation.
We sincerely recommend you inform your Microsoft 365 administrator of this issue and help you create a support ticket for the issue via Microsoft 365 Admin Center.
The support team has higher permission to remotely help you and also check the issue from background. They have more resource and correct escalation channel to help you further investigate the issue. This is also the more efficient way in handling this case for you.
For reference: How do I find my Microsoft 365 admin Get support | Microsoft Docs
Thanks for your patience and understanding so far. We hope you are keeping safe and well!
Best Regards,
Tina