mp4 the embedded subtitle track can be selected but fails to display. Failure also occurs with subtitled video files recorded by vlc itself from a TV input.
vlc is invoked from the command-line, passing the filename as an argument. I have tried this version of vlc on three different machines failure on all three.
If it is a plugin, there is a possibility that something is missing.
I do not know what component of vlc is used for displaying subtitles. However if the files with embedded subtitles are passed to mplayer, mplayer displays the subtitles automatically, which suggests that the subtitle track has been embedded correctly. Playing the original MP4 file from a directory containing the associated SRT file also fails to display the on-screen text when selected. The resulting files play in vlc and the subtitle track can be selected but nothing happens no OSD text. To set this in context for a long time I have been downloading files from the BBC as MP4 with an associated SRT file which I then embed in the MP4 file using ffmpeg. I am not sure when this happened, but after a recent update of tainted vlc, embedded subtitles no longer work for video files.
