This password can be setup inside vlc (use vlcdirect as password): But now it requires a HTTP Password to access it. Good news is that since VLC 2.1, there's no need to edit files to make VLC reachable from VLC Direct Pro Free.
There are a lot of changes between VLC 2.0.x and VLC 2.1.x versions. Running VLC 2.1.0 and newer from command line