In VATS your character delivers power swings; the type you get from holding down RT except when using VATS you don't have to worry about taking damage or your enemy stepping out of the way. Besides, I live for the slow motion blood spurts and decapitations!
I actually hate the way the Shishkebab looks. The sword constantly on fire and it's clunky build as you stated is unsuitable for stealth users, and even the oven mitt gets on my nerves. I think it's a bruiser weapon, someone who clashes with enemies toe-to-toe not the guy who silently takes you out and creeps over to the next guy undetected. Still, it's a crazy fun weapon.
Ya, VATS has it's pluses, and I really prefer Unarmed to Melee most of the time, and although I still don't use VATS for that either (except for PP to Reavers) like you, I have to say, the VATS anims are hilariously fun to watch. Nothing like punching a Mutie twice as big as my character and watching him fly across the room or the slo-mo Raider body parts flying all over the room from one punch! Good times.
I agree about the Shish and sneak, and I have to confess, I never sneak much. I prefer to charge in swinging, which is why the Shish is so much fun for me. The Samurai Sword or Jing-wei is much more suited to a stealthy character. I really, really like that Samurai Sword, it's just really too bad it comes off of that blasted ship. And, ya, the oven mitt is a bit much. It's pretty tragic when Jericho carries it and the cigarette pokes
through it.