I am contemplating upgrading (?) from a Sony HDR-HC3 (M2T files) to a Sony NEX-5 (MP4 files). Will I notice any difference in the quality of the DVD's Vegas/DVD Architect produces using M2T files versus MP4 files?
You need quite a bit more computing horsepower to edit AVCHD rather than HDV.
Your "quality" question cannot be answered based on the file formats alone. HDV requires higher bitrates to achieve comparable quality to AVCHD, generally speaking. But DVDs are standard definition, so the 'quality' of the HD is of no major consequence.
The quality of the authored DVD can indeed show significant differences. DVD Architect can also produce both Blue Ray and AVCHD disks which are high definition (up to 1920 by 1080) resolution, and some authored DVDs on red laser disk such as the AVCHD will therefore entirely preserve the quality of the mpeg2 or h.264 video which the original poster is comparing.
"Upgrading" is an interesting description. The NEX 5 is a still camera with video capabilities. Perhaps a more pressing question is whether it will suit your video needs as well as a video camera...
I should had done a little more research. The Nex-5 can record in both MP4 and AVCHD formats. Yes, you are right, the Nex5 is a still camera with video capabilities and my older, almost first generation HD recorder can best be described as a camcorder with still camera capabilities. I'd sure like to have the best of both worlds in a smaller and lighter form factor. Recognizing the age of the HC3 and the improvements in camera hardware and software design, I was curious if my Vegas Pro end product (be it SD or Bluray) would be of better quality going from a HDR-HC3 (M2T file) to a Nex5 (AVCHD file)?
Check out the reviews of the NEX 5 at dpreview.com. They don't have much to say about the video, but they're not real impressed with the camera. Not knocking the concept of the video SLRs,etc., but as I noted to my daughter who got a very nice Canon D5 for graduation - buy it for the still capability, because while it does stunning video under the right conditions, it's not a video camera.
Personally, I'm waiting to see what comes out in prosumer level, full sensor camcorders now that the genie is out of the bottle.
Apparently the original poster is interested in both SD and HD disks authored by DVD Architect.
Having owned and used several HDV camcorders (FX-1, HC3, HV20) and AVCHD camcorders as well, I can report in my own comparisons that the disks authored by DVD Architect in both AVCHD and BluRay formats definitely reveal the quality differences among the various camcorders and their respective formats, presuming that the disk templates and parameters are chosen to preserve the bitrates, resolutions, frame rates, etc. of the original captures. As Ralph states, the SD standard disks which DVD Architect can produce do not preserve these details, and for this situation the camcorder image quality and high definition performance is substantially "wasted". For the more appropriately authored high def disks, the strengths and weaknesses of these cameras becomes very evident and reproduced in nearly the same manner as if the camcorders themselves were playing back their content directly via HDMI connections to your monitor or TV.
Amen to that.
Whilst the resolution of a HD camera may be wasted when producing a SD DVD the qulaity of the image is just as vital to the end product.
On the other hand in order to squeeze more pixels into the same sized sensor the quality of the video does suffer. A simplistic analysis would suggest that to get the same quality image as produced by a SD camera with 3x 1/3" chips a HD camera would need to use 3x 2/3" chips. Such cameras do of course exist however not at a price point likely to attract too many here. The closest camera is the PMW-350 and in fairness it is ONLY around 3x the cost of the old PD170. Quite a bargain if you look at it that way.