MXTube app has been released for iPhone which allows you to download the youtube videos. It has an interface like Apple’s YouTube app. Current Features being :

YouTube style search
Saving of videos for playback at a later time (a noteworthy feature)
no encoding- direct download
video quality selection
downloads continue when suspended

Its a great app and works on Edge, 3G and wifi. More info at http://www.mxweas.com/
Where and how to download it?
Launch Cydia on your iPhone, search for MxTube, install it and boom! All the videos available on YouTube (mobile content) for your viewing pleasure!
Demo …