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:
* NPSWF32.dll
* flashplayer.xpt
* NPSWF32_FlashUtil.exe
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