I am not an accountant or tax preparer, but I do my own taxes; this is what I would do: Keep track of any capital gains/losses so you can include them in your 2013 tax return. Vanguard's website also allows you to track your sales and purchases, which is very important in a taxable account. As you know, capital gains are treated differently than ordinary income. Overall, it looks like you are up $2,454 so far.
I agree with your plan to sell the stocks; you will then have a short-term loss there. If you keep the mutual funds for a year (assuming the costs aren't too onerous), you could then take a long term capital gain, if you decide to sell them then. Capital gains varies by your income-from 0-15% for most investors. If you sell the mutual funds now, your gains would probably be short-term capital gains, which are treated as ordinary income and taxed at your marginal income tax rate. If your current mutual funds have higher turnover rates, this will cause unpleasant tax consequences for you. That is the beauty of a total market index-there is no turnover.
For simplicity and efficiency, I only have Vanguard index funds, like the Total Market Index, in my taxable account and I try not to make any changes there at all. Just buy and hold. Later, if you want more diversity in your taxable account, you can create that when you add new money to the account. Carefully read the Bogleheads material on investing so you know what you want when you talk to Vanguard.
You are making good moves. Best wishes.