I have a 5 GHz wireless connection from a $800 Cisco AP and a business 1/1 Gbps connection. I have pristine conditions.
Edit: I've also tried on other friends networks, and at work - same deal. The iPad is completely unable to play 1080p in YouTube. Netflix - no problem. AirVideo - no problem. Only YouTube.
I have several laptops, several desktop computers, a few smart-TV's, and a few Android phones. They can all stream 1080p (even 60fps where available) without any issues what so ever. I can download with 900+ Mbps on the wired part, and with 70+ to 130+ Mbps on the wireless .n connection.
Everything streams 1080p without a hitch. So did the YouTube app many months ago (4?). I used it daily, for approx an hour.
Then, suddenly, both my iPads (3 and 4) starts being completely unable to play 1080p. 720p is all fine and perfect. Only the iPads. Only 1080p. Every other platform plays YouTube (and Netflix etc) flawless at 1080p.
As described above, it simply flat out buffers, and falls to 480, goes up, ends up trying 1080p, hangs, and it is unusable even on auto. Manually select 720p = flawless.
What the Apple happened? As I bought the device primarily for watching YouTube subscriptions at night, this is annoying beyond description.
Apple, please advice. Will you refund my iPads, or fix the problem within an acceptable timeframe? (Ha! Way beyond that, just fix it now...)
I consider your device faulty when not being able to play 1080p in 2015 - especially because it once could.
ps. I've tried factory reset and only installing YouTube app... no dice.