Here's a YouTube video showing off a new Apple TV plug-in called "A Series of Tubes." The plug-in allows you to browse YouTube videos on your Apple TV. Sure, the Flash encoded YouTube videos look like crap on a HDTV. YouTube doesn't even look good when stretched out to its default 480 x 360, let alone 640 x 480 or HD. But YouTube does have thousands of clips and can provide endless hours of entertainment.
Not ready to start tinkering around with plug-ins for your Apple TV? You can still save videos off YouTube and convert them for your iPod/iTunes. Check out this tutorial: How to Copy Videos Off YouTube.