anyone heard of software that will do this i am assuming you need some kind of hardware too my stepson wants it for xmas

No offense, but I am absolutely positive that this is the wrong place to ask this question, although I'm not sure where to point you.....

point yourself to the DVD recorders section. Plenty of DVD recorder options with and without built in VHS players.

I'm not sure what you mean by the MP3 conversion. If you want the audio in MP3 format as a separate file after the DVD is made, that can be done but will take computer intervention. Most DVD recorders record DD 2.0

but ipod conversion
thanks for you help anyway but i think is computer software that he wants

He just needs a video card with video in to capture vhs. After that, there are many methods of converting to DVD, or h.264 for ipod. Check out http://www.videohelp.com/

thankyou for your help