This is a bug report, not a question, but I could not figure out how to submit a bug report.
After installing VLC 1.0.5, when I click on a desktop shorcut to a folder, or a folder in Windows Explorer, VLC starts up insteading of the folder opening. Did not have this problem with 1.0.3. I uninstalled VLC 1.0.5 using Add/Remove, and reinstalled, deselecting file association options. Same problem. Uninstalled and reinstalled, deselecting ALL install options. Now works OK. I suspect something to do with VLC adding a context menu entry