Not using direct streaming. Like I said, I would just note the frames where you would cut and then just do it with AVISynth, then encode to SVCD compliant MPEG2 and author/burn.
Whilst we are covering things that I already said. You could use a VFW MPEG2 I frame only codec to output an AVI containing MPEG2, which would technically qualify as a "yes" to your question, however it would not serve much purpose.
Not sure about loading multiple VOB's, but like I said I wouldn't recommend it for that anyway, much better to frameserve with AVISynth so that you can crop, resize, etc. and encode in YV12 or in the case of the regular version YUY2.
You could also frameserve from VirtualDub to something capable of MPEG2 encoding, which I guess whilst technically slower than AVISynth, could actually be quicker as you have already done all of the work.