Ok, got it sorted in VLC

1) Open VLC
2) Go to Settings-->Preferences
3) Select Advanced Options on the right hand bottom
4) Select Video-->Output Modules and you would see checkbox to select Video 
Output Module
5) Choose X11 Video Output in that

Now you can play videos in vlc too :)

If you that is tough to follow, please see the attachment

** Attachment added: "vlc-output-module.png"
   http://librarian.launchpad.net/7379219/vlc-output-module.png

-- 
Video does not work with Desktop Effects enabled
https://bugs.launchpad.net/bugs/102290
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