I've used AviDeMux with good results, http://avidemux.sourceforge.net/
It's handled all the VOB files I've thrown at it as well as AVI, WMV
and MP4 files. Good selection of filters for deinterlacing,
smoothing, etc. Encodes in numerous codecs, I find the MP4 codec
works well with VOB files.
In particular, I like "Video Size (Two Pass)" encoding. Two passes
for extra quality and you speciify the target file size. I use this
to take a large MP4 file and reencode it to half the original size
with little drop in perceived quality.
It's free, which is always good.
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