I was going nuts until I found this thread. I had created test users with author, editor, and admin roles and in all cases embed code dissappeared. I had already tried user roles plugin, and editing functions.php to allow unfiltered html to authors to no avail.
Since I have a video sharing site with multiple authors, I need to deactivate the multi-user network but leave the permalink structure with siteurl/blog/... intact. Not sure everything I need to do so that when the times come I can re-activate the multi-user network.
I suppose as long as I keep my mofified wp-config and .htaccess files when I swap them out with the original files, I can restore, and that I just need to make sue that Category Base and Tag Base are set to /blog in permalink stucture after I dectivate the network.
Anything else I should be concerned with? How will I know when the problem has been fixed? Has it been acknowledged by WP developers?