Earlier quoted context omitted.
Because better and equally free and open source alternatives have existed for about as long yet remain more unknown. VLC sure plays a lot of things, but it's a a real jack of all trades and master of none. I certainly understand it's appeal, but there's certainly better yet equally simple solutions out there as well (eg. CCCP for Windows, various MPlayer2 bundles for OS X like MPlayer.app). Of course, the "downside"…
What does other players do better than vlc?
I'm not at home right now so I can't reliably confirm if certain long-time issues still remain in the latest version (2.0.4), but VLC has also for the longest time had issues with pause not being completely instant (despite claiming so), the audio glitching slightly when pausing/unpausing, and seeking in H.264 video producing a garbled mess (this at least has gotten better with over time). Matroska ordered chapters support has also been shoddy for a very long time. Subtitle rendering was also absolutely hideous before they started using libass in version 1.0 (IIRC), at which point softsubs had already been in use for quite a long while. As I mentioned, VLC's development in terms of high quality playback has mostly been about playing catch-up with the better players, at worst being years behind them.