Audio is no problem, as long as I have an optical. My main concern is is it better to us a VGA or HDMI/DVI with my setup. I'm not even sure if my Xbox can use a HDMI cable either. I've been doing some research and not finding any clear answers yet.
If your 360 has an HDMI port, USE IT. HDMI has a much higher max res than VGA. You will need a converter to convert from HDMI to DVI, these can be found online for a few dollars. However, DVI does not carry sound. You will need to plug in a seperate cable for sound.
Take a standard 360 A/V cable and cut the plastic off the end of the cable. This will enable you to insert both the HDMI cable and the A/V cable into your 360 at the same time. Then you can attach the A/V cable to headphones or a speaker system.