As much as it would be a nice feature, there are a number of hinderances not one of which is resource usage on the often underpowered players. And this has been covered plenty when talking about adding more codec support to mpegplayer.
The primary video codec in the LQ FLV videos employed by youtube is based on Sorenson's line of codecs and the audio is mp3 based iirc. Both have open source decoders (In fact, FLV has direct support through ffmpeg for starters). HQ and HD videos from youtube are both based on MP4 H.264/AAC files which is a very open standard.
But it comes down to cpu and resource usage. Keep in mind that H.264 and the Soreson codecs are both more cpu intensive than Xvid/Divx and that has already been shot down.
Thankfully though with both formats having numerous applications that will read them, it should be a piece of cake to convert them to mpeg2 files for use with mpegplayer.