1) Definately off. Never quite understood why that option is there. Even in NSTC land it should never be On, there's no setup in DV, period.

2) Yes, tick the StudioRGB box. Use the Conservative Preset and move the Luma Max Smoothness slider to 1.000.

Do this while looking at the waveform monitor, set the waveform monitor to StudioRGB. With the FX disabled you'll see that peak luma goes to around 105%. Apply the FX, that'll bring it back to 100%. As you slide the Luma Max Smoothness slider around you'll notice how it affects the amount of clipping of the peak luma..

I've never seen a camera record black below legal and certainly not the EX1 so the FX will have no effect on the blacks. That is unless you've got fades or gen media on the T/L which can all too easily be outside legal with Vegas.

Note that no matter what you do the FX has no effect on nothing i.e. transparent video. With Vegas if you add a fade envelope your video will go to transparent and no FX will shift it. Problem is as you can't have transparent video it ends up as superblack. To avoid this run a track of legal black (16,16,16) gen media as the bottom track of your project.

All of the above assume you're working in 8bit.
In 32bit things get more complicated. I avoid 32bit like the plague unless there's some really compelling reason to use it.

Bob.