I have been having this problem, too. VLC used to work fine with the S-video cable to my wide-screen tv. Now I have the same problem described by the original poster. The desktop appears just fine on the tv screen and the audio goes to the tv, too, via a cable I run from the headphone jack on the computer. However, the picture screen within the VLC window is just black. As I said, it USED TO work fine. The only thing that has changed is that I answered "yes" a few weeks ago when I got a message asking if I wanted to upgrade to the latest version of VLC. I am thinking there is osmething about the latest version that makes it incompatible with the S-video setup I have. I'd like to go back to he prior version to see if that works. I'll let you know if I figure out how to do that, and whether it works.
Has anyone else here figured out a fix for this?