Secondly, the game only renders to 720p or even lower and then the Xbox and/or your TV upscale the image to fit your TVs resolution. Most videos on Youtube are probably of the PC version that is rendered at true 1080p or even higher resolution.
This is probably not the case as Youtube defaults to a lower resolution. Even if you're running your computer at setting that give a higher definition like than real life

you'll still have a drop in quality for Youtube vids. Some do offer the option to display at a higher res but even thent it's not usually 1080p.
You might want to post this question in the Technical Queries and Faults section of the boards.
I would recommend you do the following:
- Clear your Cache.
- Install the game to your Hard Drive.
- Delete your profile and recover it.
The first 2 are fairly simple to do but if you're not sure how just shout.
For the last one you MUST be connected to the internet and XBOX LIVE.
Here's a link to the official XBox LIVE instructions for doing this:
http://support.xbox.com/en-US/xbox-360/settings-and-initial-setup/profile-move-delete
Once you've done all this you'll be prompted to download the latest updates.
That should see to the Pixellation issue for you.
Let us know how you get on.
Az