You can't, unfortunately. Vegas doesn't have an AC3 decoder built in, and there isn't a plugin that will enable AC3 audio being brought to the Vegas timeline.
Sorry, can't be done. Vegas can encode Dolby Digital AC-3, but will not read it. You can use a program called "Xmuxer" to extract the MPEG video and AC-3 audio into separate streams and then use a program called "AzidLame" to convert the AC-3 into a standard wave file, which Vegas will read. Place the original MPEG video on the timeline along with the converted wave file. Yes, there are a lot of steps in the process, but it works.
Both of the programs I mentioned are freeware and can be found on the net.
Many thanks for all that. Much appreciated. Luckily this DVD Camcorder isn't mine, just having a play with it from work. The way it works slightly limits its applications. Should be something people bear in mind if they ever thought about going down that road.