No Flash for the iPhone but Apple changes YouTube?

Mac Rumors: No Adobe Flash Support on the iPhone

Markoff: “Flash [in the iPhone]?”
Jobs: “Well, you might see that.”

Jobs: “Yeah, YouTube—of course. But you don’t need to have Flash to show YouTube. All you need to do is deal with YouTube. And plus, we could get ‘em to up their video resolution at the same time, by using h.264 instead of the old codec.”

Say what? YouTube bows to Apple just so their site can work on AppleTV, something smells fishy. The only good thing to come is maybe now all the new videos will be higher res and less muddy.