1. "Match media settings" in your Project. This is a specific procedure that can be searched in these forums.

2. mp2 is not an abbreviation for MPEG-2 video. It is slang for MPEG-1 Layer 2 audio. Please use specific terminology for best results.

When previewing 16:9 its just a very small portion of the preview screen. Maybe one and half inches tall

There really should be a sticky covering putting HD on DVD. Let's see if I can remember all the steps:

First of all, you have apparently shot High Definition 1920x1080 24p, but DVDs only have standard definition 720x480 60i (NTSC) or 720x576 50i (PAL). These can be standard format (4:3) or widescreen (16:9). Since you would have widescreen source, you should choose that.

Load your footage into Vegas Pro, preferably with the project set to match your footage.

Edit as required.

To render, first set project properties as follows:

File > Properties
Full resolution rendering quality: Best
Deinterlace Method: "None" for progressive source, "Interpolate fields" for interlaced source.

Then render the video only:

File >Render As:
Save As Type: Main Concept MPEG-2
Template: DVD Architect NTSC (or PAL) widescreen Video Stream
Custom button:
Video Quality: 31
tick: Save project markers in media file
Save file

Then render the audio only to a file with the same filename stem into the same folder:

File > Render As:
Save as Type: Dolby Digital AC-3 Pro
Template: choose stereo or 5.1 as appropriate
Save file.

Then make your DVD using DVD Architect Pro.

EDIT

I have corrected the requirement for Deinterlace Method above

For my recent HD 24 progressive frames project to SD render, I used a slightly different approach; but for my approach you need a large hdd with plenty of room.
I did the same as PeterDuke for the audio.

I didn’t like the results I was getting when I rendered directly from my HD project to the widescreen DVD main concept template, soft/blurry and artifacts, so I made a custom AVI intermediate file by rendering to an uncompressed AVI, with these settings: starting with Sony YUV 1080 24p, and chaged it to a custom frame size of square pixel aspect ratio, 854X480 at 23.976 fps, no audio.

Then I put the AVI file back into my timeline to verify that the audio still was in sync (it was) and then changed the settings in the project properties for the default project template to NTSC DV 24p Widescreen (720x480, 23.976 fps). (saved as a different project name so I didn’t mess up my HD project) Now render using the default DVD NTSC DV 24p widescreen. It will correct the pixel aspect ratio to the needed 1.2121(NTSC DV Widescreen) and put in the necessary 3:2 pull down too.

Put this render into DVD architect along with your audio as PeterDuke has stated.

The results were considerably clearer. I think that the pixel aspect ratio from square to not square plus losing resolution is asking for too much to be done all at once.

One other thing is that I was working with only progressive source files, there are other issues if you have interlaced that I did not have to worry about.

Rather than render an intermediate to HDD you could probably use nested projects to achieve the same result. Others have pointed out before that converting HD to SD in one go is suboptimal, and not only with Vegas.

It sounds to me as if you are trying to make a square wheel roll smoothly. As someone else pointed out, HD DVD is not 1080(P or I) AVCHD on the other hand is and to complicate arriving at the end of your project with a great video you'll have to work around half a dozen different formats and codecs until you find a method to suit yourself.

I know it would be simple to just tell you how to do it but this is not going to help you learn how to use Vegas Pro. I strongly recommend you buy the printed Manual from Lulu. I found it far easier to learn reading it than following advice on the screen that more often than not was wrong or for a much earlier version and not applicable. This applies to all editing applications. Still and video.

Get started from the help menu (index) asking for rendering Projects

Rendering Projects (Rendering As) is the part you are looking for. If you have 2 monitors (and what video editor doesn't? following the instruction will be easier. Maybe try a couple of file formats but in the end, unless you have quality music in true stereo, you might get faster and equally satisfactory results by rendering to MOV or AVI in one process, Audio and vidoe together Then use a converter or burner to create a DVD from the file you render.

Read the manual please? It truly is the fastest way to learn.