I really don't think Sam's eyes actually turned yellow- I think it was just a flashback to Dean's hallucination. Dean would have been way more freaked out if it had been real. :D And this should probably have a Spoiler warning on it! ;)

It might be something that Dean really can see and it could develop so that he can see the evil parts of people or demonic sides like he could at the end of S3.
Or it might have been something he saw/projected on to Sammy because he is so worried about what will happen to Sammy if he continues.
Oh and not to be rude but this should have a spoiler warning (I know the UK hasn't got S4 yet and I'm sure there are others!) :D

Edit: lol must have been writing this at the same time as you Fanfly.
I completely agree that it was just Dean seeing things!

Maybe the flash in Sam's eyes was just a flare from Dean's watch lol =p

I guess it was just his hallucination,I really don't think that he can see evil in Sammy:(

if you guys haven't noticed before, I just watched it and everyone remembers Jake, one of the Demon Blood Club kids, and remember when he asks Ellen to put the gun to her head, his eyes flash yellow!! What the heck is going on with Sam, then!?

That's true linalin, Jake's eyes do flash yellow. But that was because he wanted them to, I don't think Sammy wanted Dean to see that even if he can make them go yellow.
Also Dean had just had this supernaturally induced hallucination about hell and his worst fears. His worst fears which include Sammy opening up to his 'dark side' too much and being over run by it and turning evil!

Yeah, I dont think that he can see the evil in people, like he could at the end of season 3, and I agree with everyone that it is just a projection of his fear for his little bro.

Dunno guys, I think that will be the stuff Sam is going to tell Dean... I'm just worried Sam can't help himself turning evil, no matter how hard he tries not to. And I think the more he uses the powers, the more he allows the YED's genetic code to send info... (I like Badass Sam, but not really keen on an Evil Sam). And on Dean... my boy is most surely scared about turning Demon more than anything, he'd have to kill himself.