VLC is wierd, on the one hand it is based off FFMpeg libraries like everything else these days, but I too tend to find that there is a quality drop in video. On the other hand as a stand alone player it a) handles the most formats in a single install barnone, and b) handles severely broken and corrupt video and audio files. Back in the p2p download days like eMule, I ran into a number of files that were less than %100 complete and VLC is the only thing that will play them in that state.
VLC used to have crap dvd support but rescently I installed it or my parents when their dvd player crapped out and it performed wonderfully, so kudos to that.
With all that said, MY preference for quality video playback is MPC, or more specific the CCCP bundle that contains the additional software for full subtitle support and LAV configuration.