Amazing coincidence. Within two minutes of posting my message to you, I found a file that wouldn't load onto the Vegas timeline. Found out it was Divx-encoded, so I had to follow my own advice. Like you, I found it would load, although I had a problem getting the audio to work. As a result, I am now doing an intermediate render using VirtualDub which, as always, does just about everything you want when it comes to oddball video clips.
Well, almost everything :-). I have been experimenting with rendering HDV 1080i to 1280x720p from Vegas (Debugmode Frameserver) through VirtualDub into H264 (MPEG4) format AVI , using the free x264 codec. Actually, the export works fine. Using Nero Showtime 2 for playback, the 720p image quality looks great at 4886 kbps which means I can put 2 hours of high-def video on a DVD. However there was no audio, and VirtualDub cannot even read back the AVI that it generated itself! Apparently the VFW (Video for Windows) version of the x264 codec that VirtualDub and AviSynth use, that is x264vfw.dll is not currently being developed or supported, so I'm basically out of luck.
I'd love for Vegas to natively export 720p MPEG4 with AAC audio, which as I understand it is a format used by both HD-DVD and Blu-Ray. Is this likely anytime soon?