More info ...
I changed the code above to call the stored procedure below, first allowing the result from the call to sp_getapplock to flow back to the VB code, the result was 0 and I could see the lock in enterprise manager, then to return the trancount as shown below. The trancount is 2. So I looked at the sp_getapplock source and see that the error I get indicates that trancount is 0, is there a visibility problem with system stored procedures? I hate to implement this workaround without knowing whats really wrong.
CREATE PROC AppLockId
AS
SET NOCOUNT ON
DECLARE @result int
begin tran
Exec @result = sp_getapplock @Resource = 'XXX',
@LockMode = 'Exclusive',
@LockOwner = 'Transaction'
@result = @@trancount
commit tran
return @result
GO