I removed the requirement to include the Zend library separately. I added it to the module directory. This is what I ended up with. Considering adding this as a module.. but still dont like the included Zend library files.

ini_set('include_path', ini_get('include_path').':'.drupal_get_path("module", "youtubebadge"));

/**
 * Zend gdata libraries had to be added to the php page.  I did this inside settings.php
 * by adding ' ini_set('include_path', ini_get('include_path').':path-to-zend-libraries'); '
 * Got help from http://code.google.com/apis/youtube/developers_guide_php.html#YouTubeService
 * Also, if you get a blank page, check the http error log, you might not be able to find DomDocument
 * class if PHP was not complied with Dom support, installing the php-xml rpm fixed that issue.  You
 * could also recompile PHP without the --deisable-dom switch.
 */

/**
 * Implementation of hook_requirements
 * Check for the zend gdata library
 */
function youtubebadge_requirements($phase) {
  $requirements = array();
  $t = get_t();

  // check init settings
  // check lib installed
  $gdata_path = drupal_get_path("module", "youtubebadge") . "/Zend/Loader.php";
  $gdata_installed = file_exists($gdata_path);

  switch ($phase) {
    case "install":
      if(!$gdata_installed) {
        $requirements['youtubebadge'] = array(
          'title' => $t('YouTube Badge'),
          'value' => $t('Download and extract gdata library.'),
          'severity' => REQUIREMENT_ERROR,
        );
      }
    case "runtime":
      $requirements['jquery'] = array(
          'title' => $t('YouTube Badge'),
          'severity' => REQUIREMENT_OK,
          'value' => $t('Zend gdata library installed correctly for YouTube Badge.'),
        );
    }

  return $requirements;
}

/**
 * Implementation of hook_block()
 *
 */
function youtubebadge_block($op = 'list', $delta = 0, $edit = array()) {
  switch($op) {
    case 'list' :
      $blocks[0]['info'] = t("YouTube Video Badge");
      return $blocks;

    case 'configure':
      $form = array();
      $form['youtube_feed_url_text'] = array(
        '#type' => 'textfield',
        '#title' => t('YouTube Feed URL'),
        '#size' => 90,
        '#default_value' => variable_get('youtube_feed_url_text',
                              "http://gdata.youtube.com/feeds/api/standardfeeds/top_rated?max-results=9"),
        '#description' => t('See the <a target="_blank" 
      );

      $form['youtube_feed_rss_url'] = array(
        '#type' => 'textfield',
        '#size' => 90,
        '#default_value' => variable_get('youtube_feed_rss_url', ""),
        '#description' => t('The URL for the rss link on the block title bar.'),
      );

      $form['youtube_block_title_url'] = array(
        '#type' => 'textfield',
        '#size' => 90,
        '#default_value' => variable_get('youtube_block_title_url', ""),
        '#description' => t('The URL for the block title link.'),
      );

      $form['youtube_row_width'] = array(
        '#type' => 'textfield',
        '#title' => 'Row Width',
        '#default_value' => variable_get('youtube_row_width', 200),
        '#description' => t('An approximate width in pixels that the badge has to display '.
                            'one row of thumbnails.<br/>This value helps determine the thumbnail size.'),
      );

      $form['youtube_images_wide'] = array(
        '#type' => 'textfield',
        '#title' => 'Entries Across',
        '#default_value' => variable_get('youtube_images_wide', 1),
        '#description' => t('How many thumbnails across the top of the badge.'),
      );

      // add URL test button
      return $form;

    case 'save':
      // only one block so we don't need delta switch
      variable_set('youtube_feed_url_text', $edit['youtube_feed_url_text']);
      variable_set('youtube_feed_rss_url', $edit['youtube_feed_rss_url']);
      variable_set('youtube_block_title_url', $edit['youtube_block_title_url']);
      variable_set('youtube_row_width', $edit['youtube_row_width']);
      variable_set('youtube_images_wide', $edit['youtube_images_wide']);
      return;

    case 'view': default:
      $block['subject'] = t('YouTube Video Badge');
      $block['content'] = youtubebadge_block_contents();
      //$block['content'] ="test"; 

      return $block;
  }
}

// contents of the block
function youtubebadge_block_contents() {
  $output = "";
  include_once 'Zend/Loader.php';

  Zend_Loader::loadClass('Zend_Gdata_YouTube');

  if(class_exists("Zend_Gdata_YouTube")) {
    $yt = new Zend_Gdata_YouTube();

   $feed_url = variable_get('youtube_feed_url_text', FALSE);
   $video_feed = $yt->getVideoFeed($feed_url);

   $block_args = array(
     'available-width' => variable_get('youtube_row_width', 0),
     'images-wide' => variable_get('youtube_images_wide', 1),
     'rss-url' => variable_get('youtube_feed_rss_url', ""),
     'title-url' => variable_get('youtube_block_title_url', ""),
   );

   $output .= theme("badge_block", $video_feed, $block_args);
   //$output .= theme("badge_block", null , $block_args);
  } else
    $output .= theme("badge_block", NULL);

 return $output;
}

/**
 * Themeing function for youtube thumbnail badge 
 *
 */
function theme_badge_block($video_feed, $block_args = array('images-wide'=>1)) {

  drupal_add_css(drupal_get_path('module', "youtubebadge") . "/youtubebadge.css", "module");
  $images = array();

  if($video_feed) {
    foreach ($video_feed as $videoEntry) {
      $images[] = theme("video_entry", $videoEntry, $block_args );
    }
  } else {
    $images[] = "<div>Feed not available.</div>";
  }

  $rows = array_chunk($images, $block_args['images-wide']);

  $output = "<div id='youtube-badge-block'>";
  foreach($rows as $row) {
    $output .= "<div class='youtube-entry-row'>".implode("", $row)."</div>\n";
  }

  $output .= "</div>";

  return $output;
}

/**
 * Themeing function for video thumbnail entreis
 *
 */
function theme_video_entry($videoEntry, $block_args = array()) {
  $thumb = $videoEntry->mediaGroup->thumbnail[0];

  $sugg_width = floor($block_args['available-width'] / $block_args['images-wide']);
  if($sugg_width > 0){
    $output .= "<a href='". $videoEntry->mediaGroup->player[0]->url .
      "' target='_blank'><img class='youtube-thumb' src='$thumb->url' width='$sugg_width'></a>";
  }
  else
    $output .= "<div class='youtube-video-entry'><img class='youtube-thumb' src='$thumb->url'></div>";

  return $output;
}