When I first read your post I had nothing to contribute based on experience, so I assumed somebody would come along who had a clue. I can make a few generalizations and wave my hands in the air, and maybe according to the principle of the blind pig and the acorn, maybe make up something helpful.

The VLC Web site looked good. It can use multicast transmission, which is a broadcast format appropriate for a private LAN. The network doesn't get flooded with acknowledgments because each PC is just a passive receiver. Should scale well for almost anything you want to do. Sound engineering approach.

Out of several streaming formats, always pick the highest version number: MPEG-4 would probably be most compatible at the best quality. DivX has excellent quality but hasn't been supported as widely.

I noticed in a footnote on the features table that it comes with a library to decrypt DVDs, as you mentioned in the followup. That's interesting, because that probably means deCSS, which is the controversial cracking code that was the subject of several years of lawsuits. Supporters maintain that the courts have ruled the use of deCSS to be legal, but I can't help but note that mainstream video player and editing software (Roxio, Creative, Nero, etc) all refuse to read decrypted discs. I think their lawyers have given them much more conservative advice about the legality of deCSS. In any case I doubt that you're in any danger of legal trouble if you simply stream DVDs over the corporate LAN.

I can't see anything to warn you off about. They claim 10 million downloads, and that's a pretty substantial vote of approval. Go for it, and I'd like to hear about your experience.