YouTube offer a higher definition version of their videos. It doesn’t seem to be available by default. You need to append this string to the end of your URL, and reload the page:
If you have Firefox, you can add this as a Bookmarklet. Then when you are viewing a video on the YouTuby website, click this bookmarklet, and the page will reload in HD.
Here is the bookmarklet
Right-click, and select “Bookmark this link”, or just drag it into your Bookmarks Toolbar.
More details are available on the YouTube blog