Try a different approach.
Start a new project. Use the DVD/Hard Drive Camcorder project preset.
Bring in the VOB as is. Put it on the timeline. Then go to Share/Personal Computer/DV-AVI. See if that gives you better results.\
If not, it could be the original VOB. Remember MPEGs and VOBs can use a little or a lot of compression, depending on how they're set up. And heavy compression makes for an ugly file, no matter what you convert it to.
Well, I tried your suggestion, Steve. The AVI generated from the VOB was about the same size as that generated by Streamclip. Both AVIs played clearly in Windows Media Player and Streamclip. However, the new one was just as blurry when played in QuickTime or in PE8 timeline. You suggested that if your method did not improve the problem, it could be due to overcompression of the VOB resulting in an "ugly: file. However, if that were the case, why would I be able to generate an AVI which played clearly in WMP and Streamclip?
You're right, Bob. It doesn't make sense. And I'm not sure why you're seeing seeing lesser quality in a Quicktime Player or when you bring it into Premiere Elements.
But trust this: If you've got a clean-looking AVI that looks good in Windows Media Player, then you're there. Don't worry about how it looks when you place it in a Premiere Elements project. If there's no red line above the clip when you place it on your timeline, it will give you great results.
Unfortunately, an avi (produced from VOB in Streamclip and run clearly in WMP or Streamclip) does not run clear in PE8 except in Organizer (as Longstorey also found). Once taken into PE8 and placed on Sceneline or Timeline and then saved (Shared) without even any editing as avi again, the saved clip is as blurry in WMP and Streamclip as it was in PE8 Sceneline/Timeline. I will post a followup to my problem with blurred titles as it probably relates.