I'm assuming the VOB file is either from a non-encrypted source or you have already decrypted it by ripping a dvd...
Download and install Any Video Converter - free and safe here
http://www.download.com/Any-Video-Converter/3000-2194_4-10661456.html?tag=lst-1&cdlPid=10999314
1. Add your VOB file
2. Select "customized avi" from the profile menu
3. Make sure "xvid" is selected as the video codec (avi is just the "container") - as you can see, you can make other changes such as video size and bitrate
4. When you are ready, click on convert
See here
http://www.upload3r.com/serve/010209/1233509041.jpg