Looks like those cats at YouTube are doing some background changes to their player. Although the "player" aka browser app for Windows Phone is still at a paltry v1.0, the actual streaming handled via HTML5 seems to be now more robust.
Take a gander at our screenshot above and you can now see the "HQ" option now shows up. As a result, the quality has dramatically improved to the point that we could actually, you know, use it. Sure, it's no YouTube Pro but for the occasional use, we're happier with this level of playback than the previous version. Anyone else noticing the changes?
Thanks, parthp90, for the tip