In addition to the previously announced improvements, VLC will also make use of OS X Lion’s native fullscreen mode. This way, VLC runs in a separate virtual desktop to your other apps, which simplifies multi-tasking quite a bit. Instead of VLC’s usual fullscreen button, you’ll see Lion’s native control in the upper left corner of VLC’s video window:
If you don’t like the native mode, especially since it can be less useful when using multiple physical screens, you can choose to continue to use VLC’s own fullscreen mechanism.