Interesting (to me) discoveries;
Changing the 'poster frame' like this -
https://discussions.apple.com/thread/8204077 the thumbnail corrects itself for about two seconds then becomes replaced by the iCloud version with the crazy colours.
(The cloud symbol appears in place of the thumbnail momentarily showing this to be the case)
Having checked my iCloud account in a browser, the thumbnails are perfect there ??♂️
Soo, the glitch/bug manifests when (and only when) the video thumbnail is downloaded to the Mac from iCloud.
Adding the video from the Desktop sends the correct thumbnail to iCloud and all is well.