It may run, but you probably have to compile it yourself and compiling vlc + ffmpeg so that it actually works isn't an easy task.

Do you have x264 and all the unrestricted ffmpeg libs installed from medibuntu?

Since xvid seems to work, can't you just use that? Change h264 to xvid and if you don't get sound with mp3, you can try mpga,mp2 etc. depending on what libs you have installed.