How do I stop VoiceOver on iPhone from being interrupted by notifications? Speak Notifications is set to OFF but it still will break mid paragraph and say "new notification from..." or "new text message from..." then I have to start the reading all over again.

This seems like a bug to me. It's especially annoying when the block of text is huge and can only be voiced in entirety.
I use Voice Over all the time and if I understand it correctly the setting for Speak notifications in the VO settings is just to speak the notificatons when the screen is locked. Unfortunately the only way to have it not speak individual notifications is to turn each one off as there is no way to all notifications on or off at once. Hopefully ios 6 might remedy this with the do not disturb setting that is supposed to be included.