Ah I get it now. After some testing I found that the video in term that I had trouble with had another video stream with low quality incoded in it along with the high quality one.
So if you get a really low quality playback, don't panic, simply select the right track from Video->Video Track X
It must be that some websites that stream media prefer viewers to have alternate options, how these interact with the player from the website I have no idea. Being the format WMV (in my case) it's windows media player by default playing the file. This player always appears to select the highest bitrate stream for default view.
A fix for VLC couldn't be any simpler, a quick comparison of stream bitrate size, selecting the highest by default and voila!
Edit: Old post, is this really not fixed yet? I noticed previous posts are really old... The thread views signal that a lot of people have been looking here for help though.