I think you've misunderstood. I'm saying that I wouldn't want to directly serve a client-encoded video without doing an encoding pass on the server. Youtube re-encodes all video regardless of the format it's uploaded in.
In the early days of YouTube you could upload FLVs that were served directly to users (this was back when their only playback format was Flash Video). It let you get high-quality video before that was an official option, and some people even had "fun" with malicious FLVs that crashed your browser via Flash.
