Playing DVDs in VLC always seems to yield awful video quality; I've posted a sample video below, but it would best be described as EXTREMELY "blocky." I don't mean blocky as in minor pixelation - I mean as in giant chunks of the video look garbled. I've tried numerous DVDs, and they all seem to behave this way - whereas Windows Media Player (and standalone DVD players) play them properly. The problem seems to exist when playing standalone .VOB files as well. Most videos play OK in VLC (.avi, .mp4, .mts, etc) - it seems to be specific to DVDs/VOBs.
Below is a sample vid. Please ignore the poor framerate; that's just a result of the screen capture software (framerate is smooth when viewing - it's the "massive pixellation" issue that I'm addressing):
http://screencast.com/t/L1r0Cv717i