I haven't tried it, but I would presume that the original HDV tape remains untouched. During the capture process, it is just an option to straight HDV or downconvert.
Several topics ago, Spot posted a link to the duck video comparison. Highlighted the difference in DV that was downconverted via Camera vs. downsized from HDV in Vegas. I agree there was a huge difference.
With TVs getting so large now (mine's 65"), I would want as high a quality as possible.
As indicated, the tape is always HDV if you shoot HDV, the cam converts in hardware on capture/output, but you're MUCH better off letting Vegas downconvert.