I had the same problem that you are having.
What you need to do is login to youtube's website and go into your account settings. I cannot remember if it is in the 'overview' or 'profile setup' section of the settings, but you will most likely see a message saying you haven't confirmed your account via email. All you have to do is click to have the confirmation email resent, click the activation link that's sent to your email account and then try logging in on your iphone.
hope that helps.