The tool I discovered that works is call a hot knife normally used for cutting foam and leather according to the packet. It was a happy accident that lead to this discovery, I have been wanting to try pyrography for a while so picked up this kit http://www.amazon.co.uk/Weller-Woodburning-and-Hobbyists-Kit/dp/B000X8I86C/ref=sr_1_2?ie=UTF8&qid=1347454707&sr=8-2
and included was a hot knife so I gave it a go. It is by no means a fast processes but it does cut the vinyl leaving a smooth edge. I found you could either cut with several light passes or one slow deep pass. An alternative with works for big pieces was to cut part way through and then snap along the line. You do need to be aware that there is a chemical smell given off when cutting but this was no were near as bad as I expected and working in a well ventilated area seemed to dissipate it quickly. The kit also had other burning tips which could be used to add texture and detail to the design.