This is a long shot, but do you by chance have a PicKit2 hooked up to your computer (little programmer for Microchip processors). I ran into this a while back - for some reason it causes Direct-X to also fail and prevents Vegas from starting. Unplug the gadget and all is right in the world again. Dxdiag would also fail when it was plugged in. Very strange, but I thought it worth a chance mentioning it here.

mikey