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YouTube works well with 16x9 hd video, as long as you start with the right settings in the first place.
On actual projects, I will shoot and edit in 720P (1280x720 - square pixels).
I then output as an mpeg4 using H.264 compression, file sized at 1280x720 with a data rate of 4000kb/s. It looks very nice doing it like that, although H.264 is slower to encode.
Play with a few data rates until you get something you think looks good.
(I'm NOT using iMovie, but I hope that helps!)
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