Deets on Youtube’s audio handling:
Audio is streamed at either 128k or 320k mp3.
Everything defaults to 128k. You can only get the 320k audio stream by selecting the HD video quality. Some videos start in HD but most don’t. It’s also hard to embed HD youtube into other sites since it seems to default to the basic stream.
It appears there’s no FLAC streaming allowed and no lossy streaming of any kind.
The 320k mp3’s can sound decent, especially coming from 128k, but once you go lossless you won’t want to listen to lossy anymore.