The request sent by the flash movie is what is receiving the 302 status code back from the server. The uploadfy SWF file doesn’t know what to do so it throws an error.
I would recommend using Fiddler to sniff out the upload request. The response will have a “location” header which is where the server is telling the client to go. Your mission, if you choose to accept it, is to determine where the server is trying to redirect you to and why.