It's not artificial at all. It's a real limitation that was so outrageously annoying for the reasons mentioned above that VLC was able to "win" by tackling this one issue alone.
The success of vlc is all the proof you need. As you say, why else would it be so popular?
> What's up with this artificial limitation? I'd take frame back function over not having to install some codec pack once any time
Then VLC is not for you - and there's nothing wrong with it or you - you just happen to have differing priorities. Back when the Internet was more p2p, the ability to play uncommon media formats and containers was crucial. Even today, VLC offers a lot of value to anyone who has to playback media whose encoding they have no control over.
VLC has other useful features as well (like streaming while playing back, allowing for multicomputer watch parties on the same network)
What's up with this artificial limitation? I'd take frame back function over not having to install some codec pack once any time
And 99.99% of the time you don't play "everything, with scratches", so UX issues are much more consequential than that