I'm playing as Blyth and am in league 2 after two seasons and I haven't had any youth players who made it into the starting XI, but that's mostly because I'm rapidly improving my team with signings so it's hard for the youth players to catch up.
So far I noticed three important things:
1) You obviously need talented youth players to begin with. If your youth recruitment is poor then the talent of your U18 will also be poor. The alternative in this case is to scour the market for U18s with no contract and sign them on youth contracts. I picked up two 15-year old CBs who have potential to be better than my best defenders and are already pretty close skill-wise to my bench defenders already. These guys are by far the most talented youth in my youth system - that's because I picked them off the market.
2) Your players need to train well. That includes good youth training facilities (and coaches? - I don't have a youth coach). I'm not sure if putting them on full-time adult training schedules helps, but I've been doing that by sticking them into the adult squad and making them available for the reserve team. That way they train like adults and I registered my reserve team for a league, so they get to play matches. The result is that my U18 is pretty talentless now, all the youth talent is playing in reserves or on loan.
3) Your players need first-team experience. Obviously, if you have a youth player who's good enough for your team, sticking them in your starting XI does wonders for their improvement. This eventually runs out as they settle into the game. At that point they need full-time schedules and regular starting experience to maintain their learning curve. If your player isn't good enough for your team, loaning them out is the best way. That's what feeder clubs are for. When I was in BSP, my board chose a league 7 club as a feeder, which sucked because they didn't play any games in FM. However, next year I got promoted to npower 2 and they got promoted to BSS, and suddenly I have a feeder that plays competitive games but has a horrible line-up. That means that when I loaned out three of my youth players to them, they were all picked into the starting XI. When you choose a feeder, make sure you pick a club with good training facilities, because your players train with that club while on loan. Keep in mind that you can't loan players on youth contracts out, so you need to offer your talented youths professional contracts ASAP, i.e. when they're 17.