I have been struggling for the last half an hour trying to embedd a youtube video into my girlfriend’s wordpress blog. In the end I found the easiest way was to simply turn off the default WYSIWYG editor (Options > Writing > Formatting > untick “use visual rich editor by default”), and then you can just paste the object code straight from youtube. If you don’t want to turn this off then take a look at Embed How to get YouTube working with the WP2 WYSIWYG Editor.