doesn't modern VLC try to offload some of the decoding on the graphcs card? My guess would be it's something that has gone wrong with that.
What he said. And those settings, if memory serves, are within VLC itself. Opening up the Catalyst Control Panel and doing nothing else... I can't imagine it magically enables hardware acceleration to work. The only think I could think of is that it re-enforced some vsync setting or maybe forced Windows into/out of Aero or something like that.
Nothing else immediately comes to mind from just passively opening the CCP.