My process is:
1) Turn on game.
2) Open capture device with VLC. The video is slightly shaky on the cab monitor at startup, although barely noticeable. However, this shows up very noticeably in the capture. It takes a few minutes for the shakes to go away. I could go into my theories on why it happens on both cabinet monitor and via edge connector capture, but that conversation aside I let the shakes work out before starting the OBS stream. Also, the direct feed is rotated 90 degrees, as it should be. VLC has a function that allows rotation of the video (Tools->Effects and Filters->Video Effects->Geometry->Transform), which allows it to display "upright".
3) Open OBS. Do a monitor capture of the screen with VLC running full screen.
I was using a Hauppauge device, which was streaming both audio and video to VLC. As you undoubtedly noticed Jeremy (and any other viewers of my direct feed submissions), the video and the audio are glitchy. It seems like they are constantly trying to sync with each other and constantly playing catch up to each other.
I have started using a sabrent PCI card for video, with audio feeding my Creative sound card line in. The video and audio are smooth. The process is generally the same as above, but monitor capturing the video displayed in VLC, and using the Creative line in as OBS's default mic/auxilliary input. As you can imagine, the video lags behind the audio by default. Some tweaking in OBS got the "offsets" to be pretty close. Only problem with the Sabrent card in VLC is that VLC only allows 320x240 resolution.
:edit: I don't mean to take this off topic, but here is a stream of the capture from the Sabrent card, illustrating what I'm talking about above. It starts out with the shaky video issue, and the shakes go away somewhere around 2:30. I also power-cycled the cabinet around 3:58, for everyone's edification that the rug pattern shows at startup.http://www.twitch.tv/yesaffinity/v/17310179
Neither setup is perfect, and my search continues for something a little more foolproof. Hopefully this doesn't discourage folks from going the direct feed route, but it is definitely something for a hobbyist/enthusiast with the time to dedicate to making it work.