Google is big enough where they could eventually do this most likely, but smaller sites won't have the 'credit' to pull this off.
We didn't try it with VP8/VP9 (previously On2 / Duck TrueMotion) or whatever Google seems to prefer to push instead of the emerging "standard" challenging Flash back then, so I can't comment on that particular flavor.
Much more difficult if you're trying to support multiple types of streaming to multiple eras of clients (e.g. legacy TVs and handsets with earlier YouTube clients), as they surely still have to.
But in the end it would be again an arms race of adblockers and Google, so it would change basically nothing.
YouTube already re-encodes every uploaded video into multiple formats; it would be possible for them to develop a "smart" encoder to be aware of the visual content of the video in order to place "key" frames at natural breaking points of the video, such that subsequent ad insertion would be semantically correct and not too jarring.