Youtube.com only plays HD videos with flash player 10. If you have lesser flash player then you see notice under the video that please upgrade to flash player 10. I upgraded and upgraded but nothing changed.
Problem was that now i had shockwave flash 9 and 10 simultaneously installed. Open Tools > Add-Ons > Plugins then you see which firefox plugins you have installed.
I disabled shockwave flash 9 but then youtube did not show any video at all. Upper right corner is pop-out button and then it showed me notice how i have plugin disabled.
I removed Adobe Flash from Control Panel > Add or Remove Programs but problem did not went away.
Finally i manually deleted:
from Mozilla Firefox plugins directory.
Then i installed flash 10 fresh as it is supposed to do.
See also http://kb.mozillazine.org/Flash for flash plugin uninstall removal information