Hello,
Let me explain what's going on here:
VLC 2.1.3 includes a new version of the internal updater, which solves a few minor bugs and allows us to prevent the "hey, I found an update" dialog from appearing during video playback. It includes an optimized version of the small app handling the replacement of the existing version with the new one. That's the blue icon appearing for a second or two (this icon is actually sparkle's icon, which the framework we are using).
When installing a new version, we are downloading and verifying the same disk-image as available from
www.videolan.org. Apparently, this new version of Sparkle adds support for password-protected disk-images. While this is kind of useful, the password dialog is triggered for a small number of users in case the disk-image is not attached in time (aka "if it fails to attach, it must be password protected!" Right..). We'll remove this dialog in VLC's next update to prevent the confusion it caused. However, this fix will be part of 2.1.5 so the password dialog might also appear when updating the now current 2.1.4 version.
I hope this answers your questions.
Regarding compromised updates, note that there is a verification mechanism built-in to current releases. Only updates signed with our private key will ever be accepted. And it's very unlikely for a man-in-the-middle to get hold of that key, since it is stored on a Mac without Internet access.