Yep, each update of the Google YouTube app seems less.
I found it better to just use the browser to visit YouTube and that works best for me. Tap an embedded video on normal webpages to choose the YouTube app if it's 3D, that also works for things like favorite links on your YouTube page.
Fullscreen button does what you expect, and you can fullscreen ANY embedded video by long press then select gray box that will appear in the upper left corner.
Hope that all makes sense.
The good and bad of full Flash support.