Unfortunately, IE and VLC don't really work right now... I found this on the vlc forums:
VLC included activex support up until version 0.8.6, I believe. At that time, you could
access a cab on the videolan and therefore 'automatic' installation into IE and Firefox
family browsers was fine. Thereafter support for activex seemed to stop; no cab, no
activex component.
VLC 1.0.* once again contains activex support, and that's brilliant. A good decision in
my opinion. What's lacking is a cab installer for the latest version.
This basically means that even if you found a way to make it work, anyone trying to view the video on your site in IE would have to download and install the entire VLC player program to have it work in IE, and users probably don't want to do that. I can't get your code to work in firefox or IE8 on my boyfriends computer, although I might not have been putting the video address in properly... I get some message about no video output...
I'll take a guess and say it probably works for you locally because you have VLC installed, but your server doesn't. Unfortunately you'll probably have to use Windows media player or something similar (Microsoft is great at forcing people to use their stuff!)
And if you're wondering, it appears that the reason there is no cab file is because of the cost of having an active-x control signed.
It's rather simple to have your page use VLC for firefox and chrome users, and Windows Media Player for IE users, if that would work for you.