Apologies for raising a bug report through the forum but I am getting a 'TICKET_CREATE privileges are required to perform this operation' when trying to raise a ticket via the bug tracker.
Anyway, I am running iOS 7.0.4 on an iPod Touch 5G (and iOS 7.0.6 on an iPad Air) and have VLC v2.3.0 installed which I have linked to my Dropbox account.
If a Dropbox folder is designated as kind 'App' folder (as opposed to 'shared' or 'folder') then VLC does not display a folder icon next to the folder name.
In Dropbox, an 'App' folder has a little 'jigsaw' piece in the centre of the folder icon. I assume the only way to create an 'App' folder is via a third party app. The two 'App' folders I have in my Dropbox account were created by the iOS app 'Diabetes Diary', and 'Send to Dropbox'.
Please let me know if more details are required to recreate the problem.