OK. I'm afraid I can't give you straight answers (eg what seeting to use in properties) as I don't work in HD. Hopefully others can.
However, I can point out the following which you may or may not already realise.
Jerky playback when PREVIEWing from the timeline is not uncommon. The more work the PC has to do in decompressing files, applying FX etc, the harder it has to work. This is why you can change the playback quality to draft - that'll allow you to test the TIMING of your edits. Use Best/Full to check the picture quality/colour.
You need to render a section to see what the final result is going to be like. Vegas provides many ways - selectively pre-render, render to new track, build RAM preview.
Typically when I have a section with heavy processing I want to check, I go for the Selectively Pre-Render option, but if small Build RAM preview is faster (but more temporary)
m2ts is not a file type - it's a container as used on BluRay (as vob is a contained used on DVD video).
From Wikiopedia
The M2TS container format used on Blu-ray discs can contain one of the three mandatory supported
Video_compression formats MPEG-2 Part 2, H.264/MPEG-4 AVC or
SMPTEVC-1[10] and
Audio_compression formats such as
Dolby_Digital,
Digital_Theatre_System or uncompressed
Linear_PCM. Optionally supported audio formats are
Dolby_Digital_Plus, DTS-HD High Resolution Audio and Dolby Lossless.[7][11] The M2TS container format used on an AVCHD equipment is more restricted and can contain only H.264/MPEG-4 AVC video compression and Dolby Digital (AC-3) audio compression or uncompressed LPCM audio.[9]
So what you really want to do is establish which codec is being used and to maintain the HD quality throughout use the same codec/settings as that for the rendering. You may be able to find some of this info by right-clicking on the clip within Vegas and examioning the media properties. Another very useful resource is GSpot - a free download which examines and provides detailed codec information.
If this all seems overly complex - it's because Vegas is flexible. In some other software, it makes all the decisions for you which keeps things simple, but you're stuck with whatever compromises the developers have made on your behalf.