Yes, I have watched those pay $2.99 to rent movies. They are legitimate and legal. When you go to Youtube, on the left hand side, if you scroll down is a section titled, Movies and Shows. It looks like each movie is under a channel called Youtube Movies, so there is most likely a rights agreement between the studios to be able to show those movies.
You can watch free movies, but expect low quality. I'm assuming that Youtube is hosting those movies to rent, and they are crystal clear as well.