I’m also wanting the post to be assigned the post type “Video”.
You can’t just change a post to a different Post Type. There is a difference between “Post Type” and “Post Format”.
From your examples I assume you would like to change the “Post Format”, as per the codex http://codex.wordpress.org/Function_Reference/set_post_format, you would need to paste that code in functions.php.
Then call that function in your template. eg:
<!-- Loop Start here -->
//* If post has category YouTube - set post type to video
default_post_type($post_id) {
<!-- Loop End -->