@kimh Wow, that's intense! I haven't ended up using an Nvidia GPU for at least 5+ yrs so I wasn't aware of those rather fundamental differences in the way that the GPU handles video rendering & monitor ID...
But if I'm not mistaken it sounds like you have figured out that your GPU and its drivers/software are really at the heart of your issue as opposed to VLC. That's frustrating but at least you seemed to have solved the question (although that did not resolve your issue unfortunately).
I'm definitely right there with you on the use of multiple monitors- I've had 4 HD displays connected to my main boxes (with KMV-type switching) and 3 to the other one. I get annoyed and feel strained if/whenever I get reduced to 2 for some reason. It would take some major adjustment for me to get used to just having a single monitor again- fortunately there's not really any danger of that happening!
It's really amazing how quickly the technology progressed from 1 GPU being able to support 2 monitors (for a number of years) and very quickly being able to support 4+ displays- and not just on the high-end cards... and I've never even had any hiccups or issues attributed to my GPU which is running 4 separate streams to HD monitors at 1920x1080.
Thank you for your explanation, that was very clearly written as well as informative & interesting!