"We're excited to say that support for watching 1080p HD videos in full resolution is on its way. Starting next week, YouTube's HD mode will add support for viewing videos in 720p or 1080p, depending on the resolution of the original source, up from our maximum output of 720p today."
Read YouTube's official blog post.

This is awesome news for people shooting 1080p. They will no longer have to convert to 720p and any advancement forwarding web video is great news. It is funny to think about how just a few years ago online video was mostly AVI or WMV files that looked horrible, with small frame sizes, and a gigantic file size. We have come a long way!

On the flip side- I have a cable connection that steadily has 14MBs down and 4MB up running to a dual quad core Apple Pro with a great video card and I still get stuttering video from YouTube in HD. So will it really matter if the picture is bigger is their bandwidth is lagging? Yeah, I'll take it!