my local photo shop has converted my home videos to DVD. I now want to
edit this but my software Video Explosion and Window Movie Maker cant
recognise the format. An example file is called VTS_01_3.VOB
What software do I need?

Hi there,

.VOB files are encrypted. They need to be decrypted and converted to a
format your video editing software understands.

This can be done using the tool DVD2AVI which can be downloaded here:
http://www.xs4all.nl/%7Epatstro/extradvd/downloadmirror/dvd2avi.zip

This will convert the tool to (for example) a DiVX AVI file. These
formats must be present on your PC as so called 'codecs'. To convert
the DVD to a DiVX AVI file you first have to install the DivX codec
(downloadable from www.divx.com).

Then you can use DVD2AVI to convert your VOB files: 

1) File>Open
2) Select one ore multiple VOB files
3) In the menu Video>Clip & Resize you can select some reformatting
options if needed (for widscreen to 4:3 conversions etc)
4) Select File>Save As
5) Enter name
6) Selection the compression method in the next dialog, eg. DivX Pro 5.0.2 Codec
7) Select Ok

That's it.
On http://www.extradvd.nl/html/dvd2divx2.htm there is a more detailed
(but Dutch) description