Hi Carolyn,
I believe I am having the same issue. When I try to watch videos on YouTube I receive the message "You need to upgrade your Adobe Flash Player to watch this video".
I am running OS 10.5.8 with Safari version 5.0.3. I have reset Safari, enabled plug-ins, and turned off extensions. I uninstalled Flash using the Adobe Flash Player Install Manager, then downloaded a new version from the Adobe site. I also deleted the Flash cache, as you recommended. I quit all applications and then installed Flash Player. I then repaired disk permissions with the Disk Utility.
When I opened Safari and tried to watch a video again, I received the same message. I noticed that the Flash Player cache had also not been recreated. When I tried to watch the video in Firefox the cache was created and the video played fine.
I've also tried simply restarting my machine, and at this point am at a loss.
Please let me know if you have any other recommendations!