When format do you want to go to? Video or computer display?
If targetting computers, you should probably always go progressive. If you render to 320X240 frame size or smaller, that should naturally de-interlace footage.
If targetting video, interlace is ok. Some people also like the look of 30fps progressive and 24fps progressive. You can convert 60i (60 fields / second, interlaced) to 30p with mike crash's de-interlace filter. http://www.dvinfo.net/conf/showthread.php?t=52097
You can also convert 60i to 24p... Vegas 6 does a good job at this. Vegas 5 and before don't do that great a job.
2- Interlacing will display "correctly" on a CRT television, but not on a computer monitor.