On Windows XP SP2 with Open Song beta 2.0 running, adding an external VideoLan video does work in the Sets mode, but when presenting I get an error in a command line from VLC itself, telling that some options are not support.
I installed Real Studio, downloaded code from SVN and had a try step-by-step debugging. I realised that neither --global-key-quit= nor --rc-host=localhost:11777 --rc-quiet are supported in my VLC version (0.9.8a).
VLC latest version is 2.01 now and the VLC player now works well (thanks !!). Though why not adding some VLC options support / version number checking love in Settings menu > General settings > File locations tab > Location of Videolan client. Some interactive OK/KO tickmark logo or a warning dialog after clicking OK should tell the user that currently installed VLC's version is too low and must be >= N.NN version.
Thanks in advance for this great application ! Making use of VLC for video playback is such a good idea to me !