You're right, it does say 'Stereo'. Weird. In any case, that's the passthrough connector, regardless of how it's labelled.
No, S-Video can not be easily converted to VGA.
As far as how to fix the VGA, it hasn't even been determined yet that there's anything wrong with it. The first step would be to get/make the cable, hook up the card normally (i.e., VGA output of the 2D card run to the passthrough on the Voodoo, then a single monitor hooked to the VGA output of the Voodoo), and see what happens. It sounds like the card itself works fine, since you can get a picture from the TV-out, so I suspect the problem with the VGA output is either in the way you have it hooked up (maybe that card just doesn't allow VGA output without the passthrough... even if a regular Voodoo card will operate that way, yours is quite different from the standard design), or maybe there's some issue with the drivers.