wmv vs mpeg2 whats the norm ?

It's really complicated because there are a bunch of different standards, and to make life even more confusing, codecs and the "containers" or file wrappers that contain the digitized data are different animals.

generic MP4 and the codec it used was state-of-the-art about 4 or 5 years ago, then WM9 eclipsed it in terms of quality for size, and now h.264 has dramatically one-upped WM9.

You might want to see if Vegas supports Apple AVC or Quicktime AVC, those are both implementations of H.264 that are commonly found.

Here is a screencap of the codecs available for Quicktime in Vegas Pro 8...

There is no option specifically for h.264. And I do have the codec installed on my computer. I could have sworn I read somewhere that MPEG-4 Video is what Vegas is calling h.264. But of course I can't find where I read that now.