Now rolled out for Nokia N8s around the world is a 1.2MB 'Videos' update, available via Ovi Suite and via Sw_update (over the air), bringing subtitle support (SRT and SUB formats) for downloaded videos, which then get shown in the normal way at playback time, plus better support for H.264 and other codecs. Also in the update is a shortcut to the built-in YouTube client (mobile web or standalone, depending on what you have installed). Some screens below and a video demo.
Reader Momchil Karabulev has helped with this screen and demo video of the subtitling in action:
Possibly because there are no core phone functions involved, it seems (see comment below) that this update is being rolled out almost regardless of carrier or SIM-free status.