VLC 2.0.7 (also affected 2.0.6)
OS: Windows XP sp3 (probably non-relevant here anyway)
Sample file located here (deletes within 30 days because I've a non-paid account)
http://rapidshare.com/files/2638282344/KatteMjauing.wmv
The cat is coming toward me and meows.
The video looks smooth and fine when played with Windows Meda Player (WMP for short). But when the video is played with VLC, then it looks very pixelating at the start of the video. After a few seconds, the video seems to "rebuild", and from then I can actually see the whole picture, litterally.