Andy's approach is generally accepted as the "norm" if you're making DVDs. You're better off encoding as MPEG2 from within Vegas - the DVDA job then becomes trivial. Just ensure you create your .mpg and .ac3 files with exactly the same name (except extension, of course)

If you're ditching the project after creating your DVDs OR if you might want to create another format (eg a wmv or mov) then you might want to create an AVI of the whole movie, then create your MPEG2/AC3 from that. This will give you a less compressed & more manageable source for the other formats (thanks to Grazie for that advice).

Using PAL DV or PAL DV widescreen is usually sufficient - this is, after all, the same compression that your camera used if your source was MiniDV (and higher quality if your source was any other standard def format.
The ONLY reasons I can see for using Default (which is uncompressed - hence the huge file sizes) is if you're passing this to some fancy effects program that prefers/works only with uncompressed footage OR if you need to create a file with an alpha (transparent) channel.

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Tim