just render it to higher quality. You won't loose anything but it won't look any better then 720x480 anyway.
HD is all widescreen though so, if it were me & it was a 4:3 project, I'd render out the whole thing as a single 4:3 DV AVI, then put that in a new project & the HD res. It should put the black bars on the left/right of the video, then render that to your HD file.
Yes you can do it. But your video will have very large black borders all the way around it.
(if you really need to do this, your video will probably look quite bad. You are asking to stretch it to 5x normal size. There are only two methods I would use to do this:
1. Teranex. And if you're asking here, you probably aren't going that route
2. Lanczos upscale. It's made to do this, but it's still not going to be great. better than Vegas though. You can do it in VirtualDub.
By "DV 720x480 Vegas 8 file" do you mean a project file?
If so that doesn't really matter much at all, what really matters is the resolution of your source material.
"Do you lose quality nesting project files? "
No but if you started with say HD source files in a SD project and then nested the SD project into a HD project your footage goes from HD>SD in the subproject and the master project scales that back up to HD. Not a good idea at all.