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This is how my vlc32.exe process looks like, when playing 720p content.
So, mine only takes like 75MB of RAM. I am using VLC 1.1.11 32Bits
My suggestion is to switch to 1.1.11 32Bits. What is your CPU usage when playing HD content?
It's not that the vlc.exe itself consumes hugh memory, it is that when playing h263 video, the win7 system uses all ram for caching, just look at the graph guys, the "518Mb" is because there is no more ram available so win7 reduces the ram of running process and it causes system freeze, the free ram is just like consumed by ghost process, only vlc 1.1.11 above has this problem, and using MPC-HC is very normal. Currently the solution is to remove vlc and use MPC-HC.
OS Name: Microsoft Windows 7 Professional
OS Version: 6.1.7601 Service Pack 1 Build 7601
OS Manufacturer: Microsoft Corporation
OS Configuration: Standalone Workstation
OS Build Type: Multiprocessor Free
Processor(s): 1 Processor(s) Installed.
[01]: AMD64 Family 16 Model 6 Stepping 2 AuthenticAMD ~3100 Mhz
BIOS Version: American Megatrends Inc. 080015 , 2010/8/2
Display: ATI Radeon HD 4250
Driver version: 8.850.0.0
I used systemexplorer (systemexplorer.net) to watch what was happening to the system while *.MKV playback.
First of all, VLC (2.1.2 64-bit) is started as a child process of explorer.exe process. In my system (win7 64-bit) I made the folder setting that each folder window to start as a separate process, so the mentioned "parent" explorer.exe is a N+1 explorer.exe in the list of the running processes seen under systemexplorer. Watching the memory usage while playback I noticed that not the VLC but its parent explorer.exe was requesting more and more RAM up to almost 100%. I KILLED this explorer.exe process, no side effects were observed after this action but the total memory usage in the system fell under 25% and stayed stable till the end of the playback...
P.S. Used FAR to start VLC. Opened a *.MKV file out of the VLC. Closed FAR. The RAM usage by VLC was about 26% all the time.