mikedee - 5:11 pm on Mar 12, 2008 (gmt 0)

From the Terms...

4. Commercial Use. You agree not to use the YouTube API for any prohibited commercial uses, which include the following actions taken without YouTube's express approval: * the sale of the YouTube API, API Data, YouTube video content or related services, or access to any of the foregoing; * use of the YouTube API for the primary purpose of deriving revenues from Your API Client, such as advertising or subscription revenue or the sale of copies of the API Client; * the sale of advertising, sponsorships, or promotions targeted to, within, or on the API Client or YouTube video content; Prohibited commercial uses do not include: * uploading an original video to YouTube, or maintaining an original channel on YouTube, to promote Your own business or artistic enterprise; * using the YouTube API to show YouTube content on an ad-enabled blog or website that is not comprised solely or substantially of YouTube video content; * the placement of Your own branding on the API Client, provided that it does not interfere with YouTube video content playback or with any YouTube branding; * the sale or distribution of any device that contains or runs an API Client; or any use that YouTube expressly authorizes in writing.

It doesn't say you cant develop commercial apps, but you will have to sign a different agreement and you will probably have to pay a royalty. This is fairly standard in the business, you cant expect them to just give away content and bandwidth so you can make money.