Update - I just finished ripping 30 Days of Nights (R1) using pathplayer and selected the same options of removing annoying PGC's and Jump to main title. I opened the folder just fine with VLC 0.8.6e and it did just what is should do. It jumped straight to the movie with out any problems and it is playing in the background right now just fine. I actually copied the folder over to a network share to see if maybe that had any effect. It still is working fine.
I suggest that you do a clean uninstall per StormJumpers signature link then uninstall VLC. Once VLC is uninstalled make sure that you do a clean up of the registry then reboot, reinstall DVDFab and VLC the recheck by doing another burn to see if maybe that fixed the issue.