What is procedure for converting VOB to Cineform
 

I'm using NeoScene. I've tried renaming the extension of the VOB to MPEG, but when I try converting, I get an error that it's not supported. Am I doing something wrong? I also tried renaming to M2t.

NeoScene is targeting camera formats for sources only. Most tools that can write to QuickTime (even QT Pro) and read VOB will be able create CineForm files.

If I understand correctly, I should put the VOB files on the Vegas timeline and then export as AVI-Cineform?

Adobe Premiere Pro CS4 can open VOB files, so use that if you have it. Just import the VOB file, and with the file selected in the project tab, go File -> Export -> Media...

Along with the ways suggested by David and Tom you could also do it with Virtualdubmod....not virtualdub but virtualdubmod....google it.
It is virtualdub with the ability to open vob files, and will render circles around PPRO or QuickTime