The licensing issue that screwed them is the problem: they have a choice of 2 licenses to provide YouTube (or 3 if you include handing the job off to the users browser), instead of picking 1 and complying with it's conditions, they've used the permissions of one and the obligations of the other.
They invented their own licence in effect. They either need to get fully compliant with a real licence on offer or stay blocked. Tweaking just parts of the non-compliant behaviour doesn't fix that. But Microsoft aren't in a mood to ignore any excuse to throw more shit at Google so this farce continues.