Have you tried other file types??
Here are a few things you can try that should point in the correct direction to finding a resolve for your problem.
OK! Assuming that you have tried to reset the defaults or better yet erase the preferences directory. C:\Documents and Settings\Owner (this is you)\Application Data\VLC Erase VLC, Application Data is a hidden directory so you will need to make it visible. Reset can be accomplished external to VLC by going to Start Menu. Programs, VideoLAN and selecting the reset icon or internal to VLC through Miscellaneous, Preferences, reset. Then you must restart VLC.
You can try the following:
1. Open VLC, Be sure you are in the wxWidgets mode, from the Settings pull down check Extend GUI, on the video tab check enable and then restore defaults. Now try calling a file into VLC. If you have just reset VLC I would not suspect this one.
2. Some games store information by changing settings on your video card so it would be smart to reset your video card to its defaults for 3D, OpenGL and Overlay
3. change resolutions of your video card. If you are at 1024x768 for example go to 800x600.
4. Change color depths of your video card. If you are at 32 bit color try 24 bit or 16 bit.
5. Try shutting off the video acceleration inside VLC. Miscellaneous, Preferences, Video, untick the Overlay box and save. Now close VLC and restart. Then try to call a file, within VLC.
6. As a last resort, try opening VLC Miscellaneous, Preferences, Video, Output Modules and using the pull down to select "Windows GDI video output". Then save, restart VLC and try to call a file.
Most of these things are tests to try to expose your problem. So it is suggested to put things back the way it was if it had no change to your problem. Also always call a file into VLC to rule out a possible Windows interface problem.