AC3 has always been an extra; it's never been included with Vegas.
It is included "free" with DVD Architect. I'm assuming you've upgraded to Vegas 7, right? Did you also upgrade to DVDA 4? Have you installed it? Did you uninstall DVDA 2?
With your help I got it figured out...
I HAD loaded up the new DVD-A 4, but had not run or registered it.
Did that this morning, now I find that *.ac3 is working.
sorry to be a putz as usual.
BTW...Sony, I love the new improved workflow.
I didn't know what was new since V5,
but things are much smoother, more intuitive now,
just the little things.
Very nice.
I look forward to running across new improvements as I go.