I spoke to a YouTube employee about this.
He told me that, in effect, to give third parties access to the same APIs that Google's YouTube apps use would be akin to disclosing how Google's servers are set up, deep details of how its ad infrastructure works, and this kind of thing. Google doesn't give out that information to anybody.
All third party YouTube apps use the HTML5 API -- all but Microsoft's, which is why Microsoft's was blocked. BlackBerry's YouTube app uses the HTML5 API. very smart TV and every Blu-Ray player that ships with a YouTube streaming feature uses the HTML5 API. PlayStation, you name it. It's not like you can't build a commercial quality YouTube app using the HTML5 API, because everybody else is doing it.
Also, consider that the first version of Microsoft's native YouTube app had a download button that allowed you to save any video to your device. Anybody who's ever used YouTube knows that's one of the biggest no-nos, and that YouTube is intended to be a streaming service ONLY. So why did Microsoft build that feature into its app if it was trying to play by the rules?
Probable answer: This whole thing has been Microsoft spoiling for attention and trying cast negative aspersions on Google, from the very beginning.