Do you think you could send me some small snippets of your AVIs before and after you changed the settings? It would help if I could look at them.
BTW, I was doing some extreme slow motion for a recent project, and it looked really bad until I realized that some effects, like deinterlacing, won't show correctly unless you raise the render quality to GOOD or BEST. Up until I remembered this, it looked like Vegas wasn't deinterlacing at all. Deinterlacing the video helped when I rendered it out at full speed to a new AVI, and then slowed it down with Motion Perfect, which does a FAR better job of interpolating new frames to render slow motion video. (Vegas simply takes existing video information and offsets it slightly, resulting in ghosting or double images.) If you really want good slow motion, Motion Perfect is fantastic. The samples on their website will astonish you.