When I use joonla 1.5 I was able to embed you tube videos for my web sites with out any issue. But Embedding you tube videos on joomla 1.7 was not straight forward. It requires few additional steps.
Step 01: In Joomla Administrator first go to article options. There under super user (for other required privileged) set text filtering to "NO" . This is under text filtering section.
Step 02: Now navigate to plugin manager and select tinyMC. Under Basic Options -> Functionality set it to extended.
Step 03: Now in the required article click on insert/edit embeded media. Paste the you tube embed code in Source section.
Joomla does not like youtube embeded code with iFrame. So make sure to get youtube old embeded code.