This was poor judgment from Microsoft, and as far as I can see, was addressed in this new version of the app.
> 2. Allowing users to not view ads even when the content provider specifically required ads to be shown.
Blocking on this basis alone is a double standard from Google. As others have pointed out, the iOS app developed by Apple never showed ads, even if the videos were monetized. Google never unilaterally revoked Apple's API access over it.
Though one could argue that they did and that's why iOS 6+ doesn't include it. But that doesn't explain why Apple TV, to this day, still plays all videos—even with required monetization—without ads. Why is it okay for Apple to do this, but not Microsoft? Why won't Google license YouTube API access on the same terms?
> 3. Using YouTube's branding without permission.
As above, why won't Google license this to Microsoft on the same terms as other competitors? Why is it tying a "must be HTML5" requirement to Microsoft alone, and no one else? Apple's Apple TV app isn't in HTML5 and uses the YouTube branding.
Heck, there's even a third-party app for iOS called Jasmine[1] that is a native app (embedding just the HTML5 video player inside the app as y2bd points out below) and uses YouTube branding. Why is Google making it more difficult for Microsoft to do the exact same thing? We're clearly not getting the full story from anyone here.
[1]: https://itunes.apple.com/us/app/jasmine-youtube-client/id554...