At the beginning of the year, when The New York Times' John Markoff interviewed Apple CEO Steve Jobs, the issue of YouTube compatibility was brought up. "You don't need to have Flash to show YouTube," Jobs said at the time. "All you need to do is deal with YouTube. And plus, we could get 'em to up their video resolution at the same time, by using h.264 instead of the old codec."
With the recent Apple TV and YouTube announcement, it looks like Jobs was not talking theory here, but detailing a practice.

When iLounge talked with Apple Vice President of Worldwide Mac Hardware Marketing David Moody, details of the partnership between Apple and Google came out and they sound remarkably similar to what Jobs was saying at the beginning of the year.

From what Moody told iLounge, the YouTube update will be taking place in several stages, beginning with the free software update in mid-June. At first, only "thousands of videos designed for Apple TV" will be available, with more coming ever week until the entire YouTube library is ready. As far as what "designed for Apple TV" means, it refers to videos encoded with the H.264 streaming-efficient compression format preferred by Apple, for video. All the new videos submitted to YouTube after the June update will be in this new format and all of them will be playable on the Apple TV.
Both direct links and the on-screen keyboard-based search engine that the update adds will bring users both current and old videos alike.

It is quite clear that Apple has been preparing this for quite some time and that their partnership with Google is on many levels. The move away from Flash will help give more weight to the standards that Apple, and now Google, prefer.