If validation fails, files are lost

Can confirm this. If a form has any required field, which is not populated - nothing happens after file upload. It makes this module usable just on (very) rare occasions, where are no required fields or they are already filled.

Agreed, wanted to use it but now I can't.

Same here.
Files are lost when using a custom validation:

function hook_file_validate($file) {
  $image = image_get_info($file->uri);
  $errors = array();
  if ((int)$image['width'] < 400) {
    $errors[] = t('The minimum width is 400px.');
  }
  return $errors;
}

When I use the core validation on minimum image resolution it works fine.

I created a patch for this issue.
it should skip the form validation when "start upload" button is clicked.

Cheers

Patch works for me. Thanks.