As llamatron says, it's due to pricing. It costs money for a site to send you videos, so you can imagine that youtube's bandwidth bill is pretty high (last I heard it was around the �1million/month region).
They convert your video into a flash video file (perhaps the main reason it's so successful, because it works so easily), but the algorithms they use are pretty poor and so the quality is usually noticebly poorer than a similar-sized video file in h.264 format for instance (a quicktime movie, for example).
Goto keepvid:
http://keepvid.com/
And you'll be able to download a .flv video file (flash video). As llamatron also says, vlc will happily play this.