Black levels and washed out colors (Nvidia GPU)

[hazardass]

I've been using VLC for years, and I JUST realized I've been watching it with the wrong setting. I've always suspected some issue either with my monitor settings or video card (Nvidia), but I never thought the issue was limited to VLC only. I finally realized it had to be VLC when I took some snapshots from a clip, and noticed that the snapshots looked much better than the video itself. The black level are noticeably deeper on the snapshot.

I found this article, and fixed the video quality using option 3: I disabled 'Use hardware YUV->RGB conversions' and the difference was amazing.
http://webtrickz.com/how-to-fix-washed- ... lc-player/

I would like to ask
1) Why is that setting enabled by default? Why is it needed?
2) Why did the snapshots have correct colors, but the video didn't? I'm guessing that the YUV->RGB conversion somehow doesn't apply to snapshots?

I can only imagine how many Nvidia users out there are using VLC with washed out colors and don't even realize it... I think something should be done about that. Either that setting should be turned off by default, and if it's important to keep it on, then it would be nice if the software had some kind of a 'wizard' that lets you choose the best video settings for your video card, etc.

Thank you.