By default WordPress MU does not allow embed code even when using the HTML post feature. This is different from singe WordPress instances that do allow embedding.

The fix: Edit wp-include/kses.php. In that file search for “Post filtering” and then comment out the following lines:

// Post filtering
//add_filter(’content_save_pre’, ‘wp_filter_post_kses’);


Please note this will affect all blog instances within the WordPress MU installation.

This fix came from Simply-Basic.com