I've seen this asked many times, but the answer is always (1) mount in something, (2) play.
It seems as if VLC accessing the ISO directly was unique and unusual.
I usually access the M2TS file directly, unless it's one of those split butcher jobs. The folders are so huge, that I can't afford the space, and just burn it to disc. A 2tb drive can hold hundreds of DVDs, but only a few dozen Blu-ray titles.
If ever you find something, let us know!