Following the instructions here http://www.phpbb.com/kb/article/adding-custom-bbcodes-in-phpbb3/, embedding youtube videos to phpbb3 forum does not seem to work.
but THIS seems to work fine:
BBCode usage
[youtube]http://{TEXT1}youtube.com/watch?v={TEXT2}[/youtube]
HTML replacement
<object width="425" height="355"> <param name="movie" value="http://{TEXT1}youtube.com/v/{TEXT2}"></param> <param name="wmode" value="transparent"></param> <embed src="http://{TEXT1}youtube.com/v/{TEXT2}" type="application/x-shockwave-flash" wmode="transparent" width="425" height="355"></embed> </object>