ThrowgnCpr said:
Vegas doesnt handle MPG (here in your case in VOB format) editing that well. I have never had good results with this. You are correct though that lossless AVI is going to require a TON of space.

Agreed on all counts. Vegas can handle most MPGs/VOBs, but it's not great, and VOBs with branching video get screwed up (try putting in the opening crawl from one of the SW DVDs...you can see the languages switching back and forth. Very weird.)

Buy a big hard drive (they're very cheap now), and render out to lossless AVI first. It'll also render out of Vegas much faster this way.