YouTube doesn't innovate too much and many of the features introduced lately have already been available elsewhere. YouTube is entering the mainstream and a big audience means a lot of pressure and responsibility.
YouTube, Internet Video, Google
Most viewers are interested in content itself than a higher quality. What they’ve seen through past successes, people get more fed up having to wait for buffering. It’s ‘good enough’ right now. - YouTube co-founder Steve Chen on YouTube video quality [NewTeeVee]
Wikipedia, "YouTube's video playback technology is based on Macromedia's Flash Player 7 and uses the Sorenson Spark H.263 video codec. .…[The video] has pixel dimensions of 320 by 240 and runs at 25 frames per second. The maximum data rate is 300kbit/s." Flash Player 8 introduced a better codec: On2 TrueMotion VP6, which is used by blip.tv.
YouTube recommends to use these settings when you upload videos: MPEG4 format, 640x480 resolution, MP3 audio and 30 frames per second.