OK, so you edit your project and you want to make a file that can play smoothly so that you can enjoy your creation, right? For playback on a PC, I would recommend either WMV or MP4 format. A resolution of 1280x720 and bitrate of 5Mbps should give you very good results, although you can adjust lower if the filesize is too big, or higher if you want even better quality.
For viewing on the web, well actually you can upload the same 1280x720 file to places like Vimeo or Youtube. They will compress them further, but bo pian.
If you want to play your video on a plasma/LCD TV using a good media player or BR disc player, you could try rendering at 1920x1080 using m2ts AVCHD files. In theory this full HD should be the best, but in practice may just create more problems.
Vegas should be able to render to any of these formats, although I'm not too sure about what Vegas 7 can do with m2ts files. You might want to look at upgradng to Vegas 9.