Hi,
I'm afraid this is just the way that VLC works.
You can limit access to specific IP addresses. Look at the .hosts file to see how that works.
(The manual setup instructions have details on how to find the .hosts file
http://www.hobbyistsoftware.com/VLCSetup.php )
So if you have control over IP allocation, you could put some very rudimentary access control in place.
For proper protection, you'd have to convince the VLC folks to implement some password authentication system. Definitely worth posting at their forum videolan.org