If you want to convert files, I recommend handbrake
It actually uses the vlc codecs,but gives you a much better interface with more options.
Windows also has a feature called "dreamscene" to run video files as you desktop background. You need to run a quick program to reenable it in windows seven, but it'll be fine after that. It's probably better than having an extra third party program running.
VLC is pretty well known for being able to do pretty much anything. However, there really isn't very much that it does well. Even video playback is mediocre quality, and the performance is pretty terrible compared to other programs.