When I experimented with writing music to video (see example on my website), I did all kinds of conversion tests, using DVD Vob files as input. My favorite codec now is the new Indeo one (not the old, free one). After ripping the Vob file from the DVD (which can be compared to getting the director's material) I first create a rather big AVI file (using the Indeo codec), with high quality settings and a 1:1 aspect ratio, for instance 1024 x 768. This is the point where I also set the target frame rate and interleave setting.
From this "master" I create a smaller version with a SMTPE time code burn in Vegas, with some optional brightness control. I use this version in Logic or SX2 to run along with midi.
After I have mixed and mastered the audio, I import the big AVI, the small AVI and the audio mix into a Vegas project, check the time alignment and render the big video with the audio to the required output format.
I have found Mpeg-2 to be the lousiest format, and prefer Windows Media and DivX. For internet publishing you have to create as much versions as you can host (IMO). When you work with a director, the syncing and rendering is all up to him and his team.
My 2 cts, I am just in interested amateur in this area :wink: