>>>If I want to convert standard 4x3 DV to 16x9, for later digital projection, what option should I choose for best quality<<<

There is your first "problem" - And I only say this because you than ask:
1. Use in-camera 16x9 (using a VX2000)

If you want to shoot 16x9/widescreen than the best way to do it to to shoot 16x9 - meaning that if your camera shoots native great, if not than use an anamorphic adaptor. That will give you the best 16x9 quality.

Now if you have no way to shoot true 16x9 IMO the best way is to shoot 4:3 and convert in post. And that now leads into your questions.

>>>1. Use in-camera 16x9 (using a VX2000)<<<

if it is a "Squeeze mode" I would not use it because it is doing the same thing, more or less, that you would be doing in post.

>>>2. Use a 16x9 overlay mask in camera<<<

I am guessing you mean via a "cinema" type setting that letterboxes the 4:3 image. Again - I would not do this because you can do it with more control in post.

>>>3. Shoot 4x3, then use Pan/Crop in Vegas to 16x9
4. Shoot 4x3, then use Track Motion to 16x9
5. Shoot 4x3, then use 16x9 overlay mask in Vegas
6. Shoot 4x3, then convert to NTSC DV Widescreen in Vegas<<<

Alll of this is open to discussion as to what will work/look best..in a sense there are really only 2 questions - crop to 16x9 or letterbox via overlay. For the anamorphic crop I use the crop tool and than I can adjust the image accordingly if I need to. When I render I either choose the normal DV setting which will add the "letterbox" automaticly or I choose the DV widescreen setting making sure the "do not letterbox" is turned on.

If all you want to do is add a letterbox that would give a better quality than croping, but you will still have a 4:3 aspect and when you project you will be blowing up the image - the same way you would if you cropped in Vegas. But the question was what would be best quality - so 4:3 with letterbox it would be in this case. I would say also use the Zenote letterbox plug-in because it is fast and easy to just ass a letterbox over a 4:3 image.

The VX2000 does use a squeeze mode, so I didn't think that would be desirable. I agree that adding an overlay in post would be advantageous (especially if you realize later that you didn't frame the shot the way you wanted), but does pan/crop add significantly to render time? I am already going to be adding a Magic Bullet look to the entire project, probably meaning about 200 hours of rendering.

The render settings are still a little unclear to me. If I crop the image to 16x9, I should render to NTSC DV, right? Would there be an advantage to rendering cropped footage to NTSC DV Widescreen?

I have not gotten involved with 16x9 (yet), but can offer my impressions so far--

There are different ways of saving a 16x9 image in DV. One way is simply to shoot to a 16x9 mask on the viewfinder, and then put in the letterbox bars in post. The problem is that the vertical resolution of the final image suffers, since you're limiting it to 360 pixels rather than the full 480 pixels (in the NTSC world). Most cameras (including the VX2000, I think) create "16x9" in this undesired fashion.

A better approach is to use an anamorphic lens that squishes the 16x9 field down to a 4x3 image, and then use the full 480x720 (NTSC) pixel count to save that image. But anamorphic lenses have their own problems. The best solution is, of course, to use a camera employing a CCD designed to the 16x9 format, so that the anamorphic lens is not necessary.

As I understand it, all that is needed to display an anamorphic image correctly on DVD playback is a bit in the metadata that tells the player the playback aspect ratio.

Forgive me if I'm stating the obvious.

Others have said this but I'll add my voice as well. You really need either a camera that'll shoot native 16x9 and expect to PAY, forget the dinky lttle thing from Sony or an anamorphic adaptor. If you had a camera like the DVX100A then shooting in progressive will give an increase in vertical res that'll offset the loss due to letterboxing. In fact I've seen some footage out of that camera where they use the adaptor and squeeze to get cinemascope AR and it still looked pretty good.
Another thing, 16x9 no matter how you shoot it, is less forgiving of camera motion and being off level.