I’m getting that too. Using the latest plugin version 3.1.7, wordpress 2.8.1. The good news though is it seems Google Webmaster has no problem reading and indexing it, its just that our browser comes up with this problem when viewing the sitemap.xml file.
This can happen if you don’t have sufficient memory. Can you boost your memory limit further (about 64M)?
This appears to be a problem with the new wordpress version 2.7. If you paste your youtube embed code in html mode just before you publish then it should work. After you’ve paste it don’t change back to visual view though, go straight to publish or schedule.