Is there any way to either grab the whole youtube/googlevideo type file and work with it in some editing software? Im trying to film a video response to someone and want to include short clips from the original vid to illustrate some points.

http://vixy.net/
Online version can be busy but the program works well
Sound wise editing you can use audacity of course, dunnu about video but there is a lot of stuff out there I am sure you could use

Or use Firefox and install one of the media grabbing extensions.