The obvious solution if you're listening on headphones is to select "Headphone Virtualisation" under the driver properties, assuming you're not on XP. On speakers, as far as I know, you'd be out of luck as far as a system-wide solution goes. For which YouTube resolutions correspond to which audio/video bitrates, see http://en.wikipedia.org/wiki/Youtube#Quality_and_codecs .
I've toyed around with such toys, even bought a USB sound blaster recon3d with thx studio pro, messed with rock box and its cross feed effect, foobar with it's binaural plugin, and every time with music they all produce the same unnatural stereo image collapse. The only one I found somewhat effective was the Dolby headphone included with my netbook. Even then I found it unnatural though it was the only one really effective at externalizing sound. Was great for movies though. Your best bet really is to turn such effects on when listening to early hard panned recordings then turn it off again cause they all make regular recordings sound like crap.