This simple example was cut 'n pasted from the docs on the vlc website. I then modified it to point at a small sample avi instead of the example url that was included.
I've check the avi and it plays fine in vlc so I don't think it's a problem there, but I can send the file if you want, it is pretty small, only about 200kb or so. GrahameTitle: Demo of VLC mozilla plugin
Demo of VLC mozilla plugin - Example 1
Play video1 Pause video1 Stop video1 Fullscreen