You might want to try the newer 0.8 test releases. No guarantee that it will do anything for you, but there was a post-0.7.2 change that made it work better with at least some input devices under Windows. Unfortunately, I doubt this will help you, due to the nature of your problem.
More to the point, you might want to talk to whoever supplies your video input card drivers. VLC is not changing S-video vs. composite, or anything else. It hooks to whatever applet the driver supplier provides. In other words, look carefully and you should notice that what you see looks just like the vendor's standalone control applet -- that's because that's what it is. If the driver software resets parameters, that is not VLC -- VLC neither knows nor cares about the front-end (analog side) of the card.
I use a pretty capable framegrabber, multiple audio and video inputs, a bunch of selections for input format, etc. No problems at all with VLC, not because VLC is awesome (it is), but simply because the vendor-supplied driver does what it should -- only changes the things the user asks to change. If I select composite input, then on another area of the control applet select that I'm using NTSC-M, the driver software doesn't arbitrarily change the input to S-video.