I want to "smear" an auto license plate number from some DV footage, can this be accomplished by painting directly on frames in Vegas Video? or what is the preferred way to go about this?
You could blur (or pixelate or otherwise distort) just license plate easily in Vegas.
Duplicate the license plate event on a track directly above the original. Add whatever distortion filter you want to the top track, then use event pan crop (with stretch off) to blur just the critical section.
If you want to change the license plate's # (rotoscope it), you should export the scene to a rotoscoping program and touch it up there. SF Viscosity will do this- just export the scene as uncompressed avi and paint right on the frames.