This doesn't make sense. You cannot display YouTube on your site without "embedding" code into your html, regardless of how you edit it.
By "simply allowing the different things used in the embedding code does not work" do you mean that you added the appropriate HTML tags to your $allowable_html array in config.php, and that you were still unable to put YouTube in your stories?
Can you confirm that nukeWYSIWYG / FCKeditor is working on your site for everything other than YouTube?
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