The problem you're facing is that transitions require a fast frame rate, however, more frames require more bytes in the output file even if most of the frames are identical. At a constant bit rate, having more frames per second also reduces the number of bytes that can be used for each frame and that reduces the quality.

Your 50K/picture, 4 seconds each, works out to 100Kbps. This is extremely low for video. While many people will have their own opinions of what acceptable quality is, you will probably want at least 10 times that rate to get a good image at a frame rate fast enough to show transitions.

One thing you can do to increase the quality in your situation is to enable 2-pass encoding and to set the video quality to the maximum setting. Vegas will use the first pass to analyze the video and will help it to handle the still sections between transitions more efficiently. It will then be able to devote more bits to the transitions and save bits during the static sections. It will take a lot longer to render though.