Do some reverse engineering of youtube to find out how to download the youtube videos firstly. Then make a script that does this:
http://hal0.org/toob/?page=http://youtube.com/watch?v=-ZJDNSp1QJA
Then basically make a script that gets the youtube code using cURL or file if you want to be awkward to get the page you want using get data and just use some regex or str_replace to change all the links to point to your page and also to replace any videos with a flash video player which plays the flv from your first script. Once you have done that you can make another script or implement it into the other script that it basically loads the images like a proxy (through your site).
Once you get that you can then make it automatically login so that you can watch flagged videos etc.
Good luck, but I don't mind you using mine and it will stay there for a while.