The URL is an example; when the collection is newly created or an image is added to it, updating it works. However, when it already has an image, it fails.
This issue still persists. I can confirm the same behavior David originally described. collectionCreate with a given image URL works fine. collectionUpdate with the same image URL fails with the error message as follows:
{:src=>“Error updating collection with this image”}
If you manually delete the image in the Shopify Admin and run collectionUpdate again, it works fine.