If you, like me, use the Windows Phone Youtube "App" to watch videos, and noticed that it seems to be malfunctioning (i.e., directing you to install a third party app to view a video), try the following:

Set Internet Explorer to view the mobile version of websites. (settings, Website Preference, set to "mobile version"). I previously had mine set to desktop version. After changing this preference, the app worked just fine for me.

And my apologies in advance to those for which this fix does not work.