Sure Vegas can speed up footage, that's essentially what the deal is... (A well written piece...)
There are a number of other ways to achieve time-lapse:
Scenalyzer can also extract frames at specified intervals... Vegas capture could be used with a keyboard macro to grab frames at specified intervals... a digital camera could be set for interval shots, then they can be brought into Vegas as a sequence.
Actually Marty, I tried it and it's not the same. the FCP "fit to fill" function smooths out the gaps between the shots. Simply adjusting the speed still looks choppy....
Are your "resample switches" on? (right-click events and choose "switches" then "resample").
Also, if you're using V4: a little bit of blur/motion blur and supersampling envelopes on your final output might help...