Dictation disables f8 play/pause hotkey
I have found that the problem is in fact with the way Dictation can or cannot work with VLC and other media players, except iTunes (I have also tried Clementine and MPlayerX).

Dictation pauses iTunes when it is started with the Fn key and un-pauses it when it is stopped (double-click Fn key) - a great feature, which doesn't seem to work with VLC. 

The way the Fn key is meant in Dictation (pausing the player) is not the problem, but rather the solution to what I need Dictation for. It provides Fn key as an alternate and better solution to the pause/play media key. But I will have to use it only with iTunes.