I don't think it's possible natively on the 3G network, because the videos would probably take a really long time to load, so they are compressed for an almost instant stream.
On Wi-Fi the quality dramatically improves. Sometimes on my iPhone 3G, when I would be on Wi-Fi watching YouTube videos and turn off Wi-Fi and go back to YouTube to watch another video, they would load over 3G with Wi-Fi quality, but they would take a while to load.