WooHoo!
I figured out how to do it!
You must have QuickTime Pro (got mine with my sweet FireWire-to-Go card). All you need to do is save the movie with the "make movie self-contained" option checked in the save dialog box.
Pros:
1) Less battery consumption.
2) Better sync between audio and video, fewer dropped frames (since hard drive is faster than CD-ROM/has bigger buffer.
3) Ability to edit out trailers/ads, as well as combine the video from two disks into a single file (no switching disks in the middle of the movie).
Cons:
1) Quicktime movie is a little (10-20%) bigger than the original .DAT file stored on the VCD.
2) You need >1 GB of hard drive space for each movie. However, in this age of ridiculously cheap storage, this isn't that unreasonable. Also, it only takes about 2-3 minutes to save a movie, so you can do it on the fly. The night before you leave for a trip, just save the movie or 2 that you want to watch on a plane to your hard drive. Or create a library of movies on some external firewire drive or something.
This is way cool.