Never has worked as expected, at least with compiz (Ubuntu
Ex.
1st run window is small, play a 720p vid, window resizes to suit (good behavior
Now play a 1080p video, window resizes to suit (good behavior
Now play a 720p vid, window remains a size for the 1080p vid (bad behavior
Now play a 480p vid, window is still at 1080p size (bad behavior.
The only way to get proper interface resizing to vid size is to after initial setup make ~/.config/vlc/vlc-qt-interface.conf read only. Then vlc will always size properly to video size. This is obviously a poor 'solution'