changed video output to OPENGL. Now issue seems to be resolved and more to that, CPU and GPU utilization are lower and supersmooth playback. I will test with a couple of videos different formats and post my experiences.
i hv the very same problem. im on asus k53sv i5-2410m, intel hd3000, nvidia gt-540m 2gb. the one thing i noticed that once i rename the vlc.exe to a different name in order to ba able to use nvidia gpu for video playback (by default the video playback is limited to intel hd3000 for whatever reason )...