Launch Installer from your iPhone's springboard.
Press to select the Sources tab at the bottom right of your screen.
Press the Edit button at the top right of the screen.
Press the Add button at the top left of the screen.
Set the source url to http://i.unlock.no. Then press the Ok button.
Once the source has been loaded press the Done button at the top right of the screen.
You will now notice a new category called Unlocking Tools. Press to select the Install tab at the bottom of the screen.
Press to select Unlocking Tools from the category list.
Press to select You Tube activation from the list of Packages.
Press the Install button at the top of the screen.
Press the red Install button to start the installation.
Once complete you will see message asking you to reboot. Press the Ok button.
Hold down the Sleep/Wake button for three seconds. When the power slider appears drag it to the right. Press the Sleep/Wake button again to turn back on the iPhone.
Launch YouTube from the springboard and yay! it works now.
Thanks to iPhone Dev Team, i.unlock.no, onemanarmy and everyone else that figured this out!