Everytime Microsoft changes PowerPoint, or Google changes YouTube.com, the method for embedding a video inside a PowerPoint presentation changes. As of June 2013, here's the method that is currently working.
Step 1: Find a YouTube.com video.
For this example, I'll be using one of my favorite YouTube show, "Enter The Dojo." Here's a link: http://www.youtube.com/watch?v=3CGMWlXosp4
Once you are there, look for the "Share" button underneath the video and click on it. New options will appear. The two we'll use are "Share this video" and "Embed".
Step 2: The Embed Code.
Copy the Embed Code from YouTube: Click on "Embed" and you'll see a few lines of code highlighted in blue. Sorry, not that easy. Click on the "Use old embed code [?]" option below, and the few lines turn into an explosion of HTML code. Copy that entire block of gobblygook by clicking on it, pressing the keyboard combination Ctrl-A, and pressing the keyboard combination Ctrl-C.
Paste the Embed Code into PowerPoint: Click on the "Insert" tab and look for the triangle beneath the "Video" button and click on it. Select "Video from Web site..." then press the keboard comination Ctrl-V to paste the embed code.
Fix the Embed Code: In the ugly embed code, there are two places that say "version=3". In both places, change the "3" into a "2", then click on the "Insert" button.
You now have a black block. That's normal. PowerPoint will not show or play the video until you are showing the presentation.
Step 3: Link to the video.
Yes, you've successfully embedded a video, Why create an extra link? Let's just say, never depend on technology doing exactly what you expect. You get to the class, or the interview, or the whatever, and you discover their version of PowerPoint won't play embedded videos. What now? Fortunately, you were smart enough to turn the title of the video into a link and you click on it to open up the YouTube video in a separate web browser. Good thinking!
Copy the URL from YouTube: Back on the YouTube.com page where you already clicked on "Share", click on "Share this video" and you will see a short little URL highlighted in blue. Press the Ctrl-C keyboard combination to copy the URL.
Create the Title Link in PowerPoint: Back in PowerPoint, go to the "Insert" tab and click on "Text Box". Click right above the video and start typing. For my video, the title is "Enter The Dojo, Season 1 Episode 1". By now, you've noticed I love keyboard shortcuts. So, select what you just typed by pressing Ctrl-A so that we can turn it into a link. Then on the "Insert" tab again, click on "Hyperlink". In the ugly pop-up window that appears, press Ctrl-V to paste the URL into the address box, then press Enter on the keyboard.
Step 4: Enjoy.
Hope that helps. There's no way of knowing how long this new method will continue to work, unfortunately.