I always use the standalone recorder as well for windows media files, you get more options, and the final file seems to turn out better. It's just that it's a mIcrosift designed codec so if you want to get the best quality you should use their encoder. There is nothing wrong with Vegas.

rebel44, what do you mean about the max size? Under the Custom / Video tab, you can set arbitrarily large frame sizes with any of the WMV templates. The 3Mbps template defaults to 640x480.

Generally winmedia 9 in Vegas works great. It can be slightly slower then the stand alone from MS, and it does (in my tests anyway) smooth the background a bit - likely in a move to limit crawling artifacts.

Color info should be transfered to the wmv file as it exists in source, so can't imagine a situation where a given source file, rendered to mpg2 & wmv with identical proj settings/ filters etc, wouldn't look the same, least as far as color goes. What I would check, is, mpg2 files won't play back in wmplayer without additional software. If something like power dvd is used for the mpg2's, there are color controls in power dvd that could be enhancing &/or altering the view. Similarly, wmplayer could be set to alter the playback window's colors, brightness etc... So make sure both are played back in the same software.

RE: basic quality, aside from the background smoothing, the results going to wmv from Vegas 4c or the MS encoder are very close to identical. The stand alone encoder is pickier about what files it takes, it takes extra disk space and extra work to encode 6 mono wav files for input, and it can decide to drop frames during compression.

FWIW... There is no clear cut rule for wmv file creation... Sometimes 320 x 240 works best (it's definitely quicker) from a 320 x 240 or 640 x 480 source. Other times you get better results at larger sizes. Generally I like peak vbr, which works great if you don't drop the average too far - limit the peak range instead. Usually wind up with something like 3 keyframes per sec, buffer 10 - 20, average bitrate of ~1.5 - 1.6M, peak ~2.2M, audio at 128/ 48kHz. Note: anything above 1.7 - 1.8M average can choke slower machines (~ less then 1 gig) on playback from CD.