1) background VLC session is always closed, regardless of settings, when you try to step to the next slide, rendering the feature useless.
2) --direct3d-desktop is no longer supported in VLC 2.0.5 - workaround: remove manually
3) --fullscreen (as added by OS to command line) is broken in recent VLC and prevents correct positioning on second screen. Workaround: add --no-fullscreen to params
4) --align=2 is required to get wallpaper video to align correctly on second screen.
The latter issues are problems with the crumbling code base that is VLC. It might be worth putting settings in the configuration to give finer control, otherwise you'll be chasing a moving target forever.