It's not VCD, like you were asking for, but since ultimately you were looking for a way to watch DVDs on your computer, here's what I've been doing lately, which will work for you, too: I found a program called SimpleDivx, which makes beautiful copies of DVDs -- excellent full-size picture, excellent sound, and you can specify how big you want the final file to be, in case you want to back it up to CD.
You can download it here:
http://www.free-codecs.com/download/SimpleDivX.htm
The only thing that frustrated me about this is that I'd already about a $35 VCD program to do it, which took forever to make crap copies of movies in which the sound and video weren't even synched. SimpleDivx is freeware, much faster, and much better.