I see this in totem as well, haven't seen it in VLC yet.
Nvidia 7900GTX here.
** Changed in: compiz (Ubuntu)
Status: New => Confirmed
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Intrepid: Attempting to play videos in totem/vlc results in 'BadAlloc
(insufficient resources for operation)' from X11 w/ Compiz
https://bugs.launchpad.net/bugs/285601
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