In Sony Vegas, if you're downscaling interlaced video from HD to DVD, then go into the project properties and set "Blend Fields" or "Interpolate Fields" as a deinterlace method. You actually don't want to deinterlace but having a deinterlace method set affects the quality of the resize even if you still want interlaced output. One of Vegas' quirks.
Then choose one of the DVD render templates under "Save as type:" > "MainConcept MPEG-2". I agree with Wags, if space isn't an issue then go 8mbps constant bit rate plus your audio stream.
If you have a budget to buy a better MPEG2 encoder then Cinemacraft Encoder Basic, Procoder, or one of the TMPGenc products such as Xpress will give you a better result than the MainConcept encoder shipped with Vegas. Personally I frameserve to CinemaCraft Encoder Basic using the free Debugmode Frameserver and it absolutely rocks for quality and speed, but it's not free.