We had a client site running for about a year on a windows server 2003,IIS 6 machine with no problems, but since we have migrated the site to a windows server 2008, IIS7 machine the video upload have stop generating thumbnails. I have seen a similar unresolved post and I have checked the items you have listed:
1. It is running in Full .Net Trust Level.
2. There is no thumbnail record in the database.
It seems obvious its a configuration error, but I am not familiar with the differences between WS 2003/ IIS6 and WS 2008/ IIS7.