Video problems with VLC

[Matteo Riva <muradin@gmail.com>]

I have a problem playing AVI divx files with VLC.  Yesterday upon start
VLC showed an error message complaining about divx codecs and refused to
proceed.  Today the player starts but the video is squished horizontally
(it occupies roughly 1/4th of the VLC window which is for the other part
black).

I'm on an updated testing system, and before yesterday VLC was playing
fine.  In the meantime - after a recent dist-upgrade - I cannot run X
with proprietary ATI drivers anymore, I have to use the FOSS radeonhd
ones instead.  I don't know if that's related but I thought it could be
worth mentioning (and by the way if anyone has suggestions about this
problem too, that'd be very much appreciated).

How can I fix VLC's problem?

Thanks.