jdh358 posted a nearly 4 minute long video explaining how to get the cut and paste code from youtube to work for you. I had enough difficulty getting this job done that I had to consult the oracle. So I'll save you four minutes of your life listening to a poorly miked presentation and cut right to the chase:

1. Find a video that you want to post on your blog at youtube
2. Select the generated <object> tag
3. Login to wordpress and select "Profile"
4. Deselect the Visual Editor option, select "Update Profile"
5. Goto the Write page
6. Write and publish your post as normal, pasting the <object> tag as appropriate
7. Enjoy the oohs and aaaahs of millions of adoring fans

It's very important that the WYSIWYG editor never sees the <object> tag. It doesn't parse it properly, so the brackets that are supposed to denote a tag get translated into it's numeric entity. This means that your lovingly crafted tag is treated as literal text by WordPress.