There's nothing fundamentally wrong with it, with the exception of the uncontrollable automatic and low bitrate encoding that you get - which itself might well be a deal breaker depending on the content.
For us, it has been almost a year now hosting videos on YouTube. I cannot comment on the bitrate encoding as we don't see any quality and/or delivery issues for the most part. There is the occasional visitor who encounters challenges but they are few and far between. We do a lot of HD too.
The real issue is how it's perceived by your audience, with the ubiquitous YouTube Flash interface and the logo overlay.
Do you think it really matters to the "general audience"? I mean, they are there watching a video, its content is what attracts them, not the YouTube Flash interface and/or logo. The YouTube logo is unobtrusive and for a free product, it is worth the few challenges one may be faced with depending on the audience. I don't see any issues with embedded YouTube videos on websites - its the content of the video I'm there for and that is what counts.
YouTube is still the land of silly kittens and amateur jackass imitators, embedded on every 15 year old's blog the web over.
I can't say that I visit too many 15 year old's blogs. If that were the case, then I can understand your point of view.
Your choice if you want to be associated with that. I would suggest that Vimeo or other options, with semi-pro paid options, would be a better choice for anything commercial.
I have no qualms with the other providers in this space. I've watched quite a few Vimeo videos also, but nowhere near as many as YouTube.
Since when did being associated with YouTube become a bad thing? :( Does the visitor really pay that much attention to the player itself?
Specifically, if you can host your own viral video (or extremely useful video resource, as it were) you could garner all the potential backlinks relating to that video.
Yes, you could. But, from a business standpoint, do you really have the backbone to support that type of bandwidth moving forward? For many, hosting 10, 15, 20 videos on YouTube is a perfect opportunity to get their content out there and noticed.
If you hosted your video on Youtube or Vimeo, all backlinks potentially would go to that domain.
Diversification. YouTube and Vimeo both provide a global audience. Its another outlet to diversify your media profile. Sure, you can host your own videos, you can also host those 15 minute clips on YouTube and gain additional exposure. I've found that having a YouTube Channel with the right content works very well for the client. You have quite a bit of control over your Channel(s), their content along with the look and feel, at the YouTube level. And then you have all sorts of embedding options including HD.