Premiere is far from free, and TMPGEnc is only free if you don't use MPEG2

Crap... I added the Premier line after making the comment that those were all free (its expensive unless you look in the correct place). Yes yes, and the AIW card was far from free too... but not too bad, when I got it it was $150.

Oh, I forgot to mention though, you can edit VOB files in Vidomi. You don't even need a merger - Vidomi will merge multiple VOBs for you, and you can select which audio stream to use (for multiple languages, etc).

The only problem is that you are pretty much limited to DIVX or plain AVI for output. If you have multiple jobs you can take advantage of networked computers to run a slave encoder, or take advantage of multiple processors.

I've noticed that TMPGEnc is sort of slow at seeking when selecting clips, and if you apply any filters, it is very slow but the result is superb and well worth the wait.