Check it again.
like I questioned earlier,they may not be using the API and are acting as a browser with flash player,which means they are not bound by the terms of the API. I just checked the terms on youtube,and there is a restriction on modifying the youtube player, but Microsoft doesn't have to modify the youtube player to bypass the ads. It also says nothing about restricting the use of the icon or name,because a browser has to show the name and logo when you visit youtube. there is a restriction on "downloading", but this might not stand,as youtube doesn't own the content. They cant put restrictions on downloads of other peoples content.
For clarity, you retain all of your ownership rights in your Content. However, by submitting Content to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the Content in connection with the Service and YouTube's (and its successors' and affiliates') business, including without limitation for promoting and redistributing part or all of the Service (and derivative works thereof) in any media formats and through any media channels. You also hereby grant each user of the Service a non-exclusive license to access your Content through the Service, and to use, reproduce, distribute, display and perform such Content as permitted through the functionality of the Service and under these Terms of Service.