Here's what I've always thought:
Some people say VLC is bloated--perhaps the size is too big, most codecs are just never used, etc. Some people will say the output quality sucks. I personally think it's great for CRAPPY computers, such as mine.
Understand that I have relatively crappy specs compared to nowadays standard. I can't play 1080p videos, and 720p videos are somewhat choppy, but that usually depends on the bitrates and the stuff that I never cared about.
I'm not sure how things work for media players, but from my experience, yes, VLC outputs lower quality than other media players I've used, e.g. MPlayer and MPC-HC, just to name from top of my head. But, both MPlayer and MPC-HC become off-sync after some time while watching videos (I can of course blame my CPU for this), whereas VLC does not. I've looked on documentation and threads with similar problems, but I've noticed I gave up, because I was too lazy to make it work correctly (without off-sync).
Another problem I have with MPlayer and MPC-HC is that they both play very choppy. They are just so choppy that it irritates me, so. . . . Well, even with VLC, when there are those texts on the bottom (they usually scroll from right to left for some information, prizes, or events), the video become choppy and what I call the unwatchable quality. After the texts on the bottom goes away, the video goes back to its reasonable quality. I personally don't mind too much, since, well, I can't afford to get a better computer, but I sometimes miss some important events, and that sucks, y'know, etc...
In any case, I do believe it's a matter of preference or experience. Though, it'd be nice if someone can recommend me a better setup.
I still use VLC, just because it works fine for me (two or three videos I wasn't able to play, but I'd say BLAME THE ENCODER for that) and I don't mind the quality.
/me cries