Pasting the HTML will work on news posts because the news section is HTML enabled, but that's unnecessary, because just pasting the URL also works in news posts.
Youtube links still aren't working for me. In fact, the link that you posted yourself doesn't work for me. The video looks like it's linked correctly but when you try to play it I get an "An error has occurred" error".
I'm using Firefox 3.6.3. I have Adblock, Flaskblock and NoScript installed but I disabled them all still have the same problem. If I copy and paste the link from a post and enter into the address bar it works but it won't work embedded.
Edit: Apparently its a Firefox or addon issue as the videos seem to load correctly in IE.
I also run adblock, and it doesn't interfere, but I don't use flashblock or noscript. I'd try narrowing it down to either of them (fully disable one addon - not just selectively disabled for a site, see if it works, try again with the other), and also try to make sure you have both of them disabled on Youtube.com as well.