Mew Lime wrote:...since you can't use something as high-quality as .avi's in Vegas....
You can. But what codec are the AVIs using is going to determine whether the AVI is accepted by Vegas or not. Lossless AVIs such as Lagarith or Huffyuv encoded video work great producing the best quality. DivX or XviD AVIs on the other hand, either don't work or may work with issues. And WMVs should import fine into Vegas, no need to convert to MPEG (which may lead to some quality loss).
As for upgrading the quality in Vegas, well... it is possible to do limited improvements in the program, but you are better off using AviSynth (in combination with VirtualDub/Mod) for pre- or post-processing your video.
Have you read this guide