These are what I typically use:
aRO recorded with Fraps (1280x720 @ 30 FPS)
Editted with Adobe Premiere Pro CS4 (1280x720 @ 30 FPS)
Video Codec: H.264 AVC Main Concept; Profile 4.1 High @ 9 Mbps (12 max) VBR 2-Pass
Audio Codec: AAC 44.1 KHz @ 320 Kbps Stereo
That's if I have convenient access to my university's internet, otherwise I'll encode at a lower bitrate.
I've tried Xvid uneditted hypercam'ed files uploaded to Youtube, and they turn out pretty well at Target Quantizer = 4.00 (which still makes a pretty big file, but nothing compared to Fraps). Only problem Premiere Pro does not like Xvid's temporal compression so I can't edit in Premiere Pro unless I use an intermediate step to transcode it into something compatible.
I don't think I used Premiere Pro to encode to Xvid however, so I can't compare which is better. I could make a new video and try encoding both in H.264 + Xvid, upload both and see if Youtube quality is the same or not.
If the bitrate is high enough Youtube will retain much of the quality at 720p regardless if it's Xvid or MPEG-4 or H.264/3, but on limited bandwidth, personally I'd go with H.264 @ VBR 2-Pass.
There is a free H.264 Codec (known as x.264) you can use, which can be found here:
http://sites.google.com/site/gabextreme/x264vfwunited (You'd want kMod's Video for Windows (VFW) version)
I tried using it in Hypercam as an alternative to Xvid (as I said Premiere Pro doesn't support it), but unfortunately my pc isn't fast enough to encode H.264 realtime :<
Xvid isn't bad in the slightest, there's a reason why anime fansub groups use Xvid for its 480p transcodes, but they typically use MPEG-4/H.264 for their 720p encodes. At least Xvid is a million times better than Microsoft MPEG-4 Video Codec V1/2/3, which is what I originally used. Now that was terribad.
-Edit-
Okay I tried to make some example Xvid vs H.264 Youtube, but my Xvid render completely failed. Either Premiere Pro really hates Xvid, or my encode settings were whack and Youtube therefore garbled it up (I couldn't watch the Xvid render file in VLC, sound was good but video came up blank; Winamp was able to play the Xvid file fine though). I'll try to adjust my Xvid render settings in Premiere Pro somehow
AnimusRO Mobbing and Claymore Traps (H.264)AnimusRO Mobbing and Claymore Traps (Xvid)