As you might already know, when you embed a YouTube video in iPhone app, YouTube will serve good quality video if you are on wifi connection and very poor quality if you are on 3g. How to force YouTube serve good quality at all times?
There are two ways that I've found - one requires you to "jailbreak" your phone, the other is by using a free app called Truveo
I haven't jailbroken my phone so I can't give too much info on this one, but it uses the MxTube app - go here for an explanation... www.winandmac.com/mobile/watch-high-quality-youtube-video-streaming-on-iphone-using-3g-network/
As for the app called Truveo - this doesn't require you to jailbreak your phone, however I've had very mixed results with it. Truveo lets you search video's on various sites like yahoovideo, break.com and youtube. It does NOT, however, let you type in a URL of a specific video you'd like to see, nor does it let you access things like your subscriptions/playlists from youtube. If you just want to watch random video's, you're golden, if you're wanting to view a specific one, it makes a bit more difficult as you have to search for the name of the video and I've noticed that quite often, I can't find the one I'm looking for...
Truveo DOES, however, play in great quality - which is what you were looking for in the first place.
Hope this helped.
Just use Youtube's mobile homepage m.youtube.com. It automatically selects HQ if it's available, even over 3G. Comparing the two is quite something.