Odd, I have Vegas 3.0 and it will accept the VOBs as they are. Don't have to change the ext to MPG. All I have to do is select "All Files" and the "Main Concept" plugin recognizes the file. As you mentioned, though, it doesn't pick up the sound.
ROBBYROB, one other product you may want to try and it's very inexpensive, around $50-60 U.S., is NEODVD PLUS from Mediostream.
It will import whole movies with IFOs etc. as well as individual VOBS with AC3. It will output your finished DVD with either LCPM Audio or AC3. However it has issues with AC3 streams that are beyond 2ch. I checked with tech support and they acknowledged it was a limitation. You can probably get it to work with AC3 5.1 but it will be very erratic and in most cases your output will be choppy...not a good thing.
Hope that helps