You can watch youtube videos in higher resolution by adding some string/values to the url og the video. Youtube adjust the quality/resolution of all videos uploaded to the site in order to make it accessible for all visitors including visitors who have low speed connections.
Just dd thi value "&fmt=18" to the URL, you will get a high quality video. (If it was uploaded as higher quality)
For Eg: http://www.youtube.com/watch?v=QAE2-FQHkok&fmt=18
Read more here : http://www.mydigitallife.info/2008/03/16/upgrade-video-quality-when-viewing-youtube/