the xenon can already play youtube videos
Yes, and the OP is aware of that, but they're getting a message that they need Flash when browsing the YouTube site.
Even if you use the built-in browser, if the browser's User Agent String isn't set to a mobile user agent, then YouTube will feed the browser the PC version of the page and it'll say you need to install Flash.
Try it, you'll see.
Note: Both Opera and Bolt default to mobile user agent strings, so they both should get the RTSP stream that the Xenon can play. Then again, the built-in browser defaults to Mobile for the User Agent String setting too, so not sure what's going on unless it's been changed.