Ankur,
The IPS will inspect the encrypted traffic but does not have the ability to look inside the encryption; it generally cannot understand the encrypted traffic; so all the inspection can do is IP Header type inspections like sweeps, floods, and "impossible IP packet" type checks. It may also do L4 inspections depending on your VPN technology...but the encrypted data is still opaque (cannot be understood). Any clear (non-vpn) traffic is still inspected; the meer presence of VPN does not affect non-VPN inspection.
To inspect the data that is traversing the VPN's, you'd need to put an IPS inline behind the PIX (post VPN termination).
Scott