Yesterday I upgraded to power kernel (settings) and over clocked device to 250-850Mhz (ideal profile crashed couple of time). Vlc player failed to play same .vob smoothly. Command line cvlc could play it better with single option --ffmpeg-hurry-up .
It seems --ffmpeg-hurry-up is suppose to be default enabled in VLC player (as per http://wiki.videolan.org/VLC_command-line_help) but installed vlc player dosn't have it as a default enabled.

Enabling --ffmpeg-hurry-up enabled in VLC can improve speed,

[ from http://wiki.videolan.org/VLC_command-line_help

--ffmpeg-hurry-up, --no-ffmpeg-hurry-up
Hurry up (default enabled)
The decoder can partially decode or skip frame(s) when there is not
enough time. It's useful with low CPU power but it can produce
distorted pictures. (default enabled)
]