The root of the problem here is that IE for WP does not support HTML5 inline video. Ballmer, Rubino et al. have done a pretty good job of ignoring that one fact.
Internet Explorer 10 brings HTML5 to Windows Phone 8 in a big way
"There are some minor differences between Internet Explorer 10 for Windows 8 and Internet Explorer 10 for Windows Phone that you need to be aware of. Internet Explorer 10 for Windows Phone does not support the following:
Inline video"
The APIs that Google releases externally for YT all depend on this and so, because IE on WP8 is lacking this capability it is not possible to build a YT app for WP8 that would be compliant with Google's specs. Right now, trying to do this would open the video in WP's media player and Google would not be able to measure things like ad views, ad view duration and other metrics that they must report to the advertisers.
MS, being MS, reverse-engineered the native API that Google uses for iOS and Android, and built an app that violated EVERY T&C - I mean, download vids? How were they expecting to get away with that? Then Google asked them to build a compliant app using HTML5 and the existing API, just like everyone else does. This is not possible because whoever built IE for WP is an *****. Then, they start whining about how Google is mean.