Youtube videos are a bad example, muzzle flash is a quick event and the frames of the video with the flash could be easily missing because of the poor quality.
The problem you are having here is that you forget that our eyes are not much better than TV cameras, and much WORSE than highspeed cameras as used in Mythbusters and film.
If the flash is too quick for the camera to catch, it's too quick for YOU to catch. Basically what you are saying is that a typical muzzle flash lasts for less than 1/24 to 1/30th of a second. That means in an FPS game that is averaging 60FPS the game would render the flash for 2 or 3 frames. Almost not worth even bothering, and I'm willing to bet most of us wouldn't even see it.
Muzzle flash is caused by gunpowder burning AFTER it leaves the barrel. The only time you would want gunpowder to still be unburned as it leaves the barrel is to create a nice big flash for a movie special effect. A properly loaded firearm should have all the powder burned before the bullet even leaves the barrel, anything else is just a waste of powder.
What IS visible from rather long ranges is smoke, which is why smokeless powder was invented. You are far more likely to see the effects of the shock wave on surrounding vegetation and the small puff of smoke than the muzzle flash, unless you are talking about a dark night.
Here is what I am talking about:
AK-47 tracer round - YouTube
Before you go on about frame rates, please note that you can clearly see the tracer fly off into the distance, but no muzzle flash AT ALL. The shot comes at around the 34 second mark. Also note that you can see the puff of smoke above the horizon line at the instant of firing.
Let me put it this way - if your gun blinded you every time you fired it in low light conditions, you wouldn't want to use it. Yet some games (BFBC2 for example) have the muzzle flash blind you in broad daylight. It's utterly retarded. Logic alone dictates that it can't really be like that.