What I've heard repeatedly is that Penn State wanted too much when this was being discussed. Along the lines of a Texas/B12 deal, which is why the Big East turned them down. At least, that's for when Paterno was the AD at PSU and approached the Big East: I'm not sure about the specific instance Rhoden was citing, whether that was the same time or not.
I don't know that PSU in the Big East, either in the Big East-that-was, a 1990-break-away-Big-East-that-never-was, or what have you would ever have been a realistic possibility without PSU dominating the conference the way Texas dominates the B12.
In that case, I think a lot of schools, not just VT, are a lot better off. Really, I think only Rutgers and Temple would really prefer a PSU-dominated Big East, if only because that would mean the Big East would survive. Rutgers and (especially) Temple would be PSU's lapdogs, but being a lapdog is better than being a stray.
PSU wouldn't give up Football money and Louiseville would split Bball money. The two main reasons that Eastern all-sports conference fell thru.