I just discovered that if I enable the Mac OS X interface in the Advanced Main interfaces preferences the various arrow hot key functions stop working, at least on OS X 10.7 (I also see:
12/18/11 3:05:38.342 PM [0x0-0x1c51c5].org.videolan.vlc: [0x100624768] main interface error: option intf does not refer to an int
repeatedly in the system log). In addition the Apple remote control doesn't work either if the Mac OS X Interface is enabled. Disabling it allows the remote control to function properly. For me the default VLC interface appears to be more functional.