Drop back to 720p HD if your video card can't handle the higher settings. You won't notice much difference.
Xircal, I believe many think this very common problem is due to a scaling issue rather than not having the hardware to handle the video... am also having this problem and very interested in a solution! Should really be fixed soon
Cphil19, you are abosolutely right. I had the same experience and I must say that you have described everything flawlessly. This has been the case since Adobe Flash plugin version 10.2. For me that was the last version that had no problems with upscaling. Fortunately there is a solution on youtube - you may use HTML 5 video Beta instead of flash most of the time.
Windows 7 x64
Intel HD Graphics with latest driver from manufacturer.