I uploaded the file here:
File name: 20101023141503.mpg:
Download link: http://www.mediafire.com/file/qt16z5t29kw99o2

From approximately 00:00:29;29 onwards I hear audio crackling noises (even before - but less noticeable).

thanks very much (file is about 180MB - did not get a chance to reduce it - sorry).

There is some distortion beginning at 23 seconds because someone turned up the PA system. Other than that, there is nothing wrong with the file. Opens and plays fine in Vegas Pro.

So, if you are getting crackling and dropouts, the things to check are:
1) Audio device in Vegas prefs. Is ASIO selected?
2) Vegas project properties. Do they match your media?
3) Other apps hogging the CPU?
4) Realtime effects on the timeline?
5) Prerender RAM. Is it set excessively high?
5) Audio device drivers, buffer settings?

Really, this type of video is pretty easy on the system resources. Unless there's something compromising them, it should play smoothly on the timeline.
If you don't sort it soon, post all your system specs including soundcard.

Agree completely with musicvid.

Re:3, look in Task Manager during playback and see what is taking up cpu cycles.

Do you have a SearchIndexer or Virus scan going on a tthe same time?

System config: Lenovo T61, Core2 duo 2Ghz, 2GB RAM, SoundMAX Integrated Digital HD Audio, Win 7 64-bit.

To answer your questions:
1) Audio device in Vegas prefs. Is ASIO selected?
>> Currently set to Microsoft Sound Mapper;
>> Do not see ASIO pulldown option
2) Vegas project properties. Do they match your media?
>> I think so; project set to NTSC DV widescreen
>> 720x480, 29.970 fps (gspot reports the same)
3) Other apps hogging the CPU?
>> no, only VMS running taking ~40% CPU utilization
4) Realtime effects on the timeline?
>> do not know what this is.. what should i check?
5) Prerender RAM. Is it set excessively high?
>> what is the recommended value? where do i set it?
6) Audio device drivers, buffer settings?
>> i see no options in the device manager to change this..

thanks......

1) Install ASIO drivers for your soundcard if available and select them in Vegas prefs. Much more efficient than Mapper.
2) Don't guess, click "Match Media Settings" in project. This is a specific procedure; search the knowledgebase if you don't know how to do it.
3) Open Device Manager and see what unnecessary processes may be running. Windows theme enhancements and sidebar are a biggie.
4) Have you put any video or audio effects, transitions, pan/crop, or plugins on the timeline?
5) Options->Preferences->Video->Dynamic RAM
With only 2G system RAM, this should be no higher than 256MB, set at 0 if you're not using Dynamic RAM Preview.
6) Are your audio device drivers up to date? If buffer settings are not exposed for your device, then there is probably little you can do about it.

That all being said, your system is pretty spare for running Win 7 64 with or without an NLE. Its possible that the system RAM available to Vegas is getting used up quite quickly during editing, so your page file is being hit, slowing down the preview playback. That is consistent with the symptoms you report. Rather than just add RAM, you might want to consider a system upgrade that will make Win 7 and Vegas happier. Yes, Vegas probably places a higher system demand than Pinnacle (I'm a former Pinnacle refugee myself).

As a side note, my older notebook has about the same specs as you, and works with your MPEG-2 sample file seamlessly, running Vista 32.

THANKS!

Setting Options->Preferences->Video->Dynamic RAM to 256MB fixed the problem! My installed default was set to 320MB.

Would have never solved this without such great help!

Thanks again..