In the SharePoint Online Storage FAQ post I wrote recently I noted with interest that the maximum file size had increased from 250MB to 2GB.
Now when I actually tested that in a browser I received the above error indicating that the file could not be uploaded.
Unfazed, I broke out the SkyDrive pro client app and used that to sync the same file from my desktop and as you can see from the above screen shot SUCCEESS! Yeah! In the above screen shot you see a file of size 414,262 KB. Thus, you CAN upload a file of greater than 250MB to SharePoint Online. Just seems you have to use SkyDrive pro client app from the desktop.
If you look at the SkyDrive Pro location on your desktop you will also see it there.
I get the feeling that the browser is probably not the best vehicle for transferring large files (as time outs are involved). I did do my initial tests with Chrome and Internet Explorer and expect the same issues with all browsers.
However, ring the bells, SharePoint Online now supports file sizes greater than 250MB. Another great leap forward fro Office 365!