YouTube Compression: Why?
I've answered a similar question some time ago. YouTube added a few codecs since then but all the info there still applys: How does YouTube encode my uploads and what codec should I use to upload?

Short answer: Yes if you are concerned about maximum quality a lossless codec or visually lossless codec is the way to go. Re-encoding always means loss of information if you re-encode with a lossy codec like h264.
Saying that videos will look better with compression is just a wrong statement.
Compression reduces file size, that's the only benefit you get from it. Best case you don't loose information with that compression but with most codecs like h264 you do because they discard information and re-arrange it in order to achieve a high compression.

Though different codecs do have an affect on the outcome, encoding a video with MPEG2 or h264 makes a huge difference. The former will usually have way more compression artifacts depending on your encoding settings than an h264 encoded video with similar bitrate.
So if your source is already having artifacts the second encode from YouTube won't make it look any better but worse.