What i did on my older windows2000 htpc:
In VLC i select: Tools->preferences->Video->Output:OpenGL video output.
Then i got treu graphics card hardwareacceleration for video to Monitor & my plasma tv(2nd monitor).
To select video quality: go to graphics card settings. (select preformance to play video good & smooth, select quality to give video max quality).
I see differences in graphics card settings. (so i choose the middle option high quality but fast enough to render on Nvidia 6100 chipset in Nvidia settings).
I also see the temperature of graphics card gpu jump from 34 to 67*celcius when select openGL video out in vlc.
So that must be true hardware acceleration.
Oh for audio i choose: portaudio.
Maybe that some vlc developers know a link that explains what VLC exactly does in OpenGL video output mode, but it sure rocks here.