I think the MiTube app was released very recently. You can now save videos from YouTube to your iPhone, iPad, or iPod Touch for offline viewing. It's a free app that is super easy to use. Simply search for a video, choose whether you want to stream it or download it, and choose the quality of the video. The videos then get saved to a library contained within the app (not to the "Videos" native application).
So far I have downloaded 5 videos, with only one video giving me a problem (the app crashed) as it neared download completion. I canceled the download of this video and then the program continued to work without problem. I'm not sure if it was the video or the app that caused the crash. So far, it seems to be a pretty elegant solution for offline viewing of YouTube videos.
Header photo by Robert S. Donovan