The youtube app does NOT play .swf files. They are basically Quicktime files.
"YouTube is in the process of encoding videos using H.264, the advanced video codec built into QuickTime 7 that enables higher-quality video to be streamed over the Internet at lower bit rates. The iPhone will be the first mobile device to use those H.264-encoded videos, according to Apple. More than 10,000 videos are expected to be available in H.264 format on June 29th; YouTube will be adding more each week, and the company will have its full catalog available in H.264 by this fall."
Quoted from
http://www.pcworld.com/article/id,133185-page,1/article.html
Mac OS X (10.4.10)