My main issue with VATS in FO3 was that you seemed to be invincible while in that mode. Working as Intended?
You WERE invincible, or at least nearly, and yes, it's exactly as intended. Because you have absolutely no control over your character when using VATS, and Bethesda (rightly, I'd say.) thought that players would not want to be constantly dying when using VATS because their character just stands in place out in the open and they have no way to change this when using VATS.
It seems to me that making the player still vulnerable when using VATS would make it entirely worthless, if I wanted my character to stand around making no effort to defend himself while enemies shoot at him, I'd play one of the original turn-based Fallout games (And I am in fact quite fine with that aspect of turn-based combat, mainly because it works both ways. But in real time combat, if it's possible for my character to be harmed than I SHOULD BE ABLE TO RESPOND TO THESE THREATS.)
Still, I can't blame Obsidian for trying to make VATS somewhat less powerful, as it could be a little overpowering in Fallout 3, I just fear that they could have gone too far in the other direction and made it so there's absolutely no reason to use it, since I haven't been able to play the game yet, I can't say for sure what it's like.