The method we use for uploading in IE8/9 (a hidden IFRAME) does not allow access to the server response for failed requests. This is why the Upload requires an OK response even if the server validation has failed.
If you prefer to keep the JSON response then you need to process it in the success event. There's no way to mark the upload as failed from the success event. We should probably figure out a way to make this possible.
An alternative approach is to return the error message as plain text. This will get you in the error event handler where you can access it.
I hope this helps.
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