Youtube videos does not play on Sony Ericsson Xperia X8

Hi! Friends,
Bought an Xperia X8, but I was surprised to know that it cannot play youtube videos and even MP4’s. Every time I attempt to play a video from youtube, the screen would just show me a message saying “Sorry, the video cannot be played”. I tried to download youtube and re-install it in my phone, but still the same problem persists.
Is this problem enough reason to say that the phone is defective and needs to be replaced? Do I need to adjust settings or download any files or components in order for youtube videos to play in my Xperia? If yes, which settings? What files to download? I hope somebody can help me.
Thanks!
