Okay, hold on.
DVD is MPEG-2, already compressed. Of course you don't want to recompress the video to work with it, so divx/xvid, etc, are out of the question for editing purposes.
You have a couple options now.
You could either encode it with HuffYUV (which can do YV12 now, same colorspace as DVD). This is lossless.
You could also just demux the vob files into video .mpg/.mpv(.m2v) and whatever audio form its in, dolby digital is .ac3, PCM is .wav, MPEG 2 audio is .mpa(.mp2).
Keep in mind that editing may be easier with the HuffYUV file, because each frame is an I frame, file sizes will also be bigger though.
So basically, would you rather edit the file in it's original structure and format, or losslessly make a new file from it that may be easier to work with?