Err, no. Youtube videos will appear blurry and blocky for one or a few of several reasons:
1. You might not have selected high-quality on the video
2. You might be using the native Youtube app over 3G, which will not play high-quality (or at least didn't in the past, not sure now)
3. The video creator/uploader did not upload a very high-quality video
If the device does not have the processing power to play a high-quality video, it will not display it "blurry or blocky", it will just play it with lag. However even my 3GS does not really have a problem with this, the graphics accelerator was already fast enough to play anything short of 720p.