(I sure hope there is a better way than this.)

Select the frame you want to freeze on then press the "Copy
Snapshot" button on the Video Preview window. This copies
it to the clipboard. You should split the video track at
this point.

Since VV wants to use only external files, you now have to
create a bitmap file of what is on the clipboard. The
easiest (sic!) way I found is to go to MS Paint and select
Edit Paste, then Edit "Copy to". This will create a bitmap
file of just your frame.

Now add the new bitmap file to the Media pool in VV and
drag and drop it to the exact same spot in the timeline you
did the original "Copy Snapshot".

Some graphics programs will not save the file properly
(adding rows or columns in the bitmap) resulting in a jerky
transistion. Paintbrush does not.

I've used this technique for some time and it works well.