I will check back here now and again, Sutherland, and see if this has been resolved, or do what I can to help you track down what is causing this problem.
But... I needed to get my videos set as featured images so I did some hunting, and found that the Video Thumbnail Auto-Feature plugin seems to work okay.
Actually, the first time I used it, it was picking the wrong image for the thumbnail, and it clutters the media library horribly with duplicate images when a post is updated (not a problem for most people I guess), but after emptying my library of all video images, I finally got it to work.
Again, I consider Video Thumbnails to be a superior plugin when it works for me, and I will be looking forward to finding a resolution for this issue.