the_post_thumbnail call removing li in code

the_post_thumbnail(); function is not supposed to be echo-ed! get_the_post_thumbnail(); is meant for that. Refer to the linked WordPress Codex pages.

Try this instead:

<?php

    // Wraps post-thumbnail in li tags
    echo ' <li>' . get_the_post_thumbnail('talent-featured-thumb') . '</li>';

?>

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