We use Youtube rss.
It embeds the video flawlessly. But I think you would also need to use a product.
Search for:
passiveVid 1.1.2 Automaticlly turns video links like youtube, myspace videos, google vidoes into the video players.
Then when the Rss feed fetches the Youtube URL, this modification converts the url, automatically into actual video within the feed post.
Ste
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