Youtube slow on iPhone over wifi
If you have a slow download speed then that might be the problem.

This is what you should do.


Go to the settings and choose "airplane mode" then activate the Wi-fi to force the phone to only use it.
Now you need to reboot the device by holding the "home" and "sleep/wake" at the same time for about 10 seconds. This resets the ram and gives you the best chances. 


Your IPhone 4 has 512 mb ram which is plenty. and you are running 4.2.1 which is ok. (4.3 has a faster JavaScript motor but may give you worse battery life.) 
Now choose a video clip and play it either from the youtube player or from Safari (it might be faster). 

Goodluck!