I know this is a late answer, but if someone else is looking for an answer to this problem, like me, I would like to relieve them of the headache associated with searching further than necessary.
Judging by this post on the VideoLAN forum made by the site administrator (Jean-Baptiste Kempf), this seems to work as intended.
Yes, there is no such way. Either these are two windows, or you just have a preview instead of a thumbnail.
(my emphasis)
In my opinion, this is a stupid limitation / feature.
EDIT 2019:
It seems now possible to achieve what the OP wants. Just drag the top of the video up and the navigation will be hidden, you will see a vertical resize icon replacing the pointer icon when you hover over the line between the navigation and the video. At least this works on my version of VLC (version 3.0.7.1) on Windows 10
I do not know when it was implemented, but I would feel very stupid if I had not tried it before I posted this answer.
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