Since VLC for iOS can't seem to stream movies directly from Dropbox with the .srt subtitles displayed on the movie, I am using nPlayer (free version) for now.
When I look at their options for subtitles, they cover more then VLC does at the moment. Have a look:
One of their handy options is:
Display Subtitles: On Screen or On Video.
When you select 'On Screen', nPlayer displays the srt subtitles on the screen-area of the player, under the actual movie frame. So, hardcoded subtitles never get in the way of your custom .srt ones! Perfect solution. I wish VLC has this for the nearby future.