Thanks for reporting as @pkiller mentioned this should be fixed if you create the system folder. I have also fixed it on master as well as the error messages so you should get a better error message if the upload fails.
Yes, indeed, if you're looking to scale up to handle high concurrent user loads, scaling out horizontally is your best bet. We've got a client right now serving 700+ connections at the moment, and they're on four separate NodeBB instances. It's probably too much for what they need, but it's always nice to have more capacity than needed in case of spikes, etc.
If I understand you correct, you don't want to convert your database, but want NodeBB to work with users, that still will be in your existing database (MS-SQL).
It's possible, by creating your own database driver for NodeBB.
But, actually, it's not so easy. If you don't have high skill in programming, it's near to impossible.
has anyone run NodeBB using a custom SQL user database like this?
Maybe, but I never heard about it. You could try to wait for the NodeBB core developers. They, probably, know something, that may helps you.