Youtube just put up another site revamp which seems to have killed the ability to play youtube videos in higher resolutions in android via playing them through the desktop version of their site in the browser. However, they seem to have finally upgraded the youtube application to play videos in higher resolution on phones. Earlier tonight when I first got my galaxy nexus I was unable to play back 720p video through the youtube application. As of about 20 minutes ago, I now can. Try it out if you have a galaxy nexus or rezound. It looks incredible.