The passage you cited only permits YouTube to display the user's content. Another section of the TOS prohibit use of the material unless done through YouTube. Section 5B of the TOS:
"You shall not copy, reproduce, distribute, transmit, broadcast, display, sell, license, or otherwise exploit any Content for any other purposes without the prior written consent of YouTube or the respective licensors of the Content. YouTube and its licensors reserve all rights not expressly granted in and to the Service and the Content."
Section 6C:
"For clarity, you retain all of your ownership rights in your Content."
The copyright law cited is fairly clear. Removal of the copyright notice is a violation, and the act of removal also indicates willfullness and intent.