When I had an iPhone2g (first iPhone) I could not use the youtube app eithier. But I could still watch youtube videos if I went onto youtube in Safari. Then I saved it to the homescreen so it was pretty much just like an app to me.
I sold the iPhone2g though becaue you can't upgrade the firmware past 3.1.3 and half the apps I wanted I couldn't download. I now have an iPhone 3GS running firmware 4.3.3