Same problem here, with open source RADEON driver (r300) and AIGLX.

I may have found an explanation on the OpenSuse XGL Troubleshooting page 
(http://en.opensuse.org/Xgl_Troubleshooting).
Here is the interesting quote:
---
General hardware dependent issues
 * XVideo will be very slow if hardware acceleration (pixel shaders) is not 
available. If using a composite manager, it will only be fast if FBOs or 
pBuffers are available and activated, or for fully opaque fullscreen windows 
(turn on option 
apps/compiz/general/screen0/options/unredirect_fullscreen_windows). 

ATI / open source driver "radeon"
 * Driver has neither pBuffer nor FBO support. When using a composite manager 
all windows are rendered in software and only compositing is hardware 
accelerated. Astonishingly, this works well enough for most use cases. 
---

Regarding lauching two instances of VLC and getting video output on the second 
one:
> Mike I can confirm that it behaves exactly the same. The first video opened 
> works 'some times' but not very often. The second video opened works no 
> matter what you do with it.
I guess the second instance just fails over to x11 (poor video quality) with no 
hardware acceleration, and no antialiasing...

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