Youtube and Firefox have developed a way of integrating Windows Media Player in place of the normal Youtube flash player to allow for up to 1080p resolution. This works best with windows 7, but it is capable of working on XP or Vista as well. You also need to have firefox to use this.
Go here for firefox:
www.mozilla.com/en-US/firefox/personal.html

Follow this link for the Greasemonkey addon:
addons.mozilla.org/en-US/firefox/addon/748

This Add-on is what allows you to run the WMP on Youtube.

A few more things you will need:
IF you ARE running Windows 7, then follow this link to download the Windows Media Player Firefox Plugin

IF you are NOT running Windows 7, then follow these two links:
www.cccp-project.net/
port25.technet.com/pages/windows-media-player-firefox-plugin
-download.aspx

The cccp link may look scary, but it isn't what it seems like the first time you see it.

Once you have everything installed, you should be able to go onto Youtube and watch videos in HD from your computer. Keep in mind that not ALL vidoes are HD available, so there are some that WMP won't run. When this happens, a link will come up that says Disable WMP. All this does is disable the Plugin for THAT video on only that one occasion. Let me know if there are any problems. Enjoy! :)