All employees hired prior to Jan 1 are entitled to two weeks vacation, after 5 years of service an additional week and after 7 years, a fourth week of vacation. In the past we have been able to take vacation days in any number of increments, from two days, a whole week and sometimes up to two week increments. That policy is now changing to only full weeks. There are now several employees that have already taken single days of vacation, leaving them with less than a full week. I understand a company can adopt a use it or lose it policy, but isn't that earned vacation time still owed to the employee? Does the company have to pay out the unused vacation time to the employee?

Not in Texas. Only if there is a legally binding contract or policy to do so. It is not unconditionally due.

the benefits, "vacation", are part of the benifits package as presented in the employee handbook upon employment. Doesn't that amount to a "contract" of sorts?

Historically most employee handbooks reviewed by courts do not rise to the level of an enforcable contract. It is possible that yours does, but the only way to be sure is to give it to a local attorney to read. Contract law is very specific to both state law and the exact wording of the contract.