I found
this little tool on the web - it allows you to convert MOD to mpeg and also allows the correct aspect ratio info to be put in the header. I was having trouble with widescreen (16:9) footage coming into my editing software as 4:3 and having to manually "interpret footage" for each file to get it back to 16:9. This tool will batch convert whole folders or you can select individual files.
I now download all my MOD files to my computer hard drive, then batch convert them using this tool before importing them to edit in Premiere Elements 7. They come in without having to be conformed (as they are now mpegs) and resized.
From the Sony Vegas page:
"import AVI, DV, SWF, and MPEG 1 & MPEG 2 files" - nothing about MOD (though they are mpeg2) or for that matter Sony's proprietary file mt2
I had a trial of Vegas 8 on my comp and it handled the MOD files OK.