Viper’s Video Quicktags allows your users to easily and securely embed videos from various websites (YouTube, Vimeo, DailyMotion, etc.) into their blogs. You may have heard of this plugin before, but it’s been completely recoded from scratch to provide a much better interface and an immense ability for configuration as well as full support for WPMU.
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It works similarly (and is compatible with) how WordPress.com does it — shortcodes aka BBCode. The user simply clicks a button in their editor and pastes the URL to the video (no need to dig through the embed HTML) into the box that pops up and wa-la — it’s embedded. It’ll even keep their blog XHTML valid.
For more details as well as screenshots, see the plugin’s homepage.