You would need a machine capable of capturing the analog lines that carry the closed captions. My Panasonic DMR-E20 does that. It captures CCs perfectly. That's what I would do, because the subtitles on a VHS are embedded in the picture. Then after you have that captured to MPEG-2, you would need to extract the subs from the stream. I don't know exactly how to do the process, but probably using TMPEG "demux" tools, you'll see all the streams in the captured MPEG-2 file including CCs. So then it would be a matter of extracting the RAW CC stream and converting it to useable subs to be encoded. Check WinSubmux and other subs programs around. Hope this gives you some ideas
-kwag