Detailed Steps

* Install the latest version of VLC media player (1.1.2 or 1.1.3 may be a good choice)
[About 1.1.4 for Windows read "Known Issues / Corrupted audio" on this website first.]

* Open the file ".hosts" in a text editor.
Remove the hash sign (#) in front of the private addresses of your local network (usually "192.168.0.0/16") or just add your IP address to the list. Save the file.

Windows 7:
Note: If you are using the VLC installer package for Windows your ".hosts" file is located in "C:\Program Files\VideoLAN\VLC\http" and you may need Admin privileges for saving your changes. Alternatively you can download the zip package of VLC media player and unpack it to another folder on your computer.

Keep in mind that all computers from the allowed networks will be able to browse your hard drives!

* Start VLC and from the menu select View -> Add Interface -> Web Interface.

Windows 7:
If a "Windows Security Alert" pops up select all networks and click "Allow access" (administrator privileges required).
You can also configure your firewall manually under Start -> Control Panel -> System and Security -> Windows Firewall -> Advanced settings -> Inbound Rules -> New Rule...
Create a new rule for VLC media player and allow all local TCP ports (at least 8080, 8081, 5554). Set remote addresses to restrict access to VLC.

VLC Web Interface is now running in the background. You can check the current status in your web browser: http://127.0.0.1:8080/requests/status.xml
(If you replace 127.0.0.1 with your computer's local IP address you shall be able to open this page from your computer and phone as well)

In case of problems check that no other media player or server is listening on port 8080 or use another port for VLC.

* Now you are ready to connect from your phone in one of many ways:
- android-wifi-tether app to turn your phone into a hotspot and connect from your computer via Wi-Fi or Bluetooth
- "Tethering & portable hotspot" on Android 2.2 (Froyo) for connecting from your computer via USB or Wi-Fi
- PdaNet app to connect from your computer via USB or Bluetooth (Windows, Mac)
- Connectify for Windows 7 to create a Wi-Fi hotspot and connect from your phone
- Wireless home network (if phone and computer are connected just scan your local network from the app)
- Outside your home network (you need to know your external IP and configure port forwarding on your router)

Start the app, press the menu button and open the "Connect" dialog.

Make sure there's at least one local network listed. Select a network and press "Scan". If everything is set up properly you will see a notice "VLC server found" and the IP address or hostname of your computer will be filled in. You can press "Connect" now.