Apple needs to just update the app....in the mean time, I will be using the mobile site
Apple YouTube app is doing the "correct" thing by respecting the GMS recommendation for bit rate 3G video. When using the app over WiFi you get the full quality. The problem is that people don't care about these specs and the 3G infrastructure today can handle the higher quality.
I've just disabled the Apple app and put a shortcut to the mobile site on my home page.
There is very little reason for Apple to bother upgrading the app at this point. The web interface works very well. However what Apple does need to do, is provide a better way to remove the pre-installed apps.
-Sorry to bring up a dead thread, but I just found out about the restrictions and love the seamless experience for HQ videos.