Nevermind, I finally figured it out after all day looking at this stupid thing LOL... I've seen tons of posts on this all over but no solutions, so in case anyone else runs into this, the answer is that the rewrite engine is redirecting the request no matter where you put this in the file, so since you have to manually insert the cgi-bin folder to get the custom install, you will have to manually add it into the rewrite engine as well on both levels. So simple I could slap myself, but it usually is.
Soooooo... your ReWrite instructions will have to be changed to this:

RewriteEngine On

RewriteCond %{REQUEST_URI} !^/file/.*
RewriteCond %{REQUEST_URI} !^/cgi-bin/.*
RewriteCond %{REQUEST_URI} !^/install/.*
RewriteCond %{REQUEST_URI} !^/update/.*
RewriteCond %{REQUEST_URI} !^/design/.*
RewriteCond %{REQUEST_URI} !^/plugins/.*
RewriteCond %{REQUEST_URI} !^/vbforum/.*
RewriteRule ^index.php(/.*)$ /index.php?do=$1 [L]

RewriteCond %{REQUEST_URI} !^/file/.*
RewriteCond %{REQUEST_URI} !^/cgi-bin/.*
RewriteCond %{REQUEST_URI} !^/install/.*
RewriteCond %{REQUEST_URI} !^/update/.*
RewriteCond %{REQUEST_URI} !^/design/.*
RewriteCond %{REQUEST_URI} !^/plugins/.*
RewriteCond %{REQUEST_URI} !^/vbforum/.*
RewriteCond %{REQUEST_URI} !^/index.php
RewriteRule ^(.*)$ /index.php?do=/$1 [L]