In a new editorial called "Deconstructing VATS", Duck and Cover discusses the way combat was handled in the original two Fallout titles and why they feel that Bethesda's Vault-Tec Assisted Targeting System was designed for "the lowest common denominator" in order to achieve commercial success with Fallout 3. Since a slightly modified version of VATS will be used in Fallout: New Vegas too, I suppose the article applies to both titles:
Consider this scenario: You are surrounded by three Super Mutants, you queue up your shots and let fly woohoo! Blood shall flow! Unbeknownst to you, fourth SM is behind you in melee range (hard to tell without that ISO perspective). Trouble is, you character is standing statue still while this fourth SM takes the opportunity to club you over the head. Oblivious to the assault, your character blithely carries out his ordered shots whilst being pummeled. Now, I'd say that's dealing with the consequences of your poor strategy, did you really think you could stand still and fire off numerous shots without and retaliation? And why rob the player of the joy of getting his ass-kicked once in a while another cornerstone of a good RPG. Not scaling or dumbing things down for those of use lacking in sound tactics. Taking away the challenge makes the game an exercise in 'going through the motions'.
Bethesda's solution, was to nerf the damage received from adjacent enemies while carrying out VATS shots. You get an unexplained immunity I'm unsure of how this magical immunity contributes to immersion. The ultimate result of these modifications basically encourages and rewards poor strategy. The presence of VATS itself reinforces this as only the player can take advantage of it, - it's a built in cheat mode! Contrast this to Fallout's solid RPG system where the same rules of combat apply to all.