1st, make sure you have turned on SEF URLS in Joomla configuration, and rename "htaccess.txt" to ".htaccess" (found in web root).
My hack is for metadata only. If you want better SEF URLS for VM than what Joomla does, the easiest thing to do is get router.php and install it in the components/com_virtuemart/ folder. You can find router.php on this forum... just search for it.
Once found, download and ftp to the location I stated above... and POOF, you have sef urls for VM.