Ok, tried Magiciso to convert the .mdf to .iso
Then used the .iso to create the eboot file with
-icetea 1.3
-psx2psp
-popstationgui
All resulted in black screen.
When I tried to run the game with the eboot that was created with icetea, I see a loading screen that says "booting playstation bios SCPH100.BIN"
blargh, I guess I'll give up on Vagrant Story =\
edit - I won't bother with VS until I get a proper file, the game won't even boot up in epsxe.