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file_prepare_directory will not create a dir by default.
I am a bit confused, since I don't remember Plupload FAPI element to support #upload_location option. I searched entire module for it and I found nothing.....
I just had a similar problem. I was using http://drupal.org/sandbox/fangel/1652676 with Media-2.x-dev and File Entity-2.x-dev + Plupload.
I have a multivalued image field with Media multiselect as the widget. The field was also set to store the files in files/galleries. I noticed when I used plupload to upload a lot of files at once it was failing. Then I created the a folder under my files directory called galleries and everything started to work fine.
I haven't tried the patch yet, but I just wanted throw that information out there.
Just tested the patch in #1 and it resolved the problem(#3) for me. Thanks @mikeytown2
Again... this module does not upload files to #upload_location. It puts them into temporary files folder and expects implementing code to decide what to do with them.
You must check for solution in the module you use with Plupload.
Just adding some related issues in case someone happens to stumble across this problem.
#1733472: Problem with subdirectory for upload images#1776300: Respect field settings like minimum - maximum size when used as image field
I believe this is the issue to follow - #1761496: Implement a value_callback for media element
#2128253: File multiple upload does not respect the field's configuration 'File directory' might be related.
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