There'd be no benefit to that as we already resize and compress the thumbnail down to the correct size. It's best to start off as high resolution as possible, then whatever settings you have for the thumbnail sizes will dictate the eventual resolution and file size of the thumbnail.
With an even smaller thumbnail, XFMG would end up scaling it up to the right size which would look pretty poor.
Due to the API alternative that's in the code appearing to be less consistent with more recent videos, we have just updated the package with a fix to this. The version number listed in the control panel is now 1.0.5a to distinguish that it has been patched.
If you have already upgraded to 1.0.5, you can replace library/XenGallery/Thumbnail/YouTube.php with the version attached to fix it. (Note that this is preferable to the previously posted workaround.)
If you applied the previous workaround (now deleted), then please go to Admin CP > Applications > Gallery Options > Media Site Options ensure the textbox next to the YouTube drop down reads as follows: