The extension of a file rarely tells us what codec it was encoded with.
For example, the reason why you can not open all AVI files in Vegas Pro, is that not all .avi files are the same. The file extension usually dose not have anything to do with the actual file format, and is really just a container.
Why you can not open your video with Sony Vegas
What is important for Vegas Pro is the codec that the file has been encoded with – not so much the container format.
Good formats for Sony Vegas could be, MPEG-2, MPEG-4 and H.264 (x264), so if your file for some reason does not work, try converting it to one of those formats.
For a recommendation on video conversion see: How to get any video to work in Vegas Pro
Codecs and container formats
Generally a good container format these days is MP4, as a lot of videos are distributed as MP4 files. The codec should be chosen carefully, depending on what the requirements are for the video.
If you want to have the smallest file size as possible, then you should likely try to experiment with the AVI container and DIVx or xVID codecs.
Another possibility, if you need to edit the video later, is to use the MPEG-4 codec with the MP4 container. It is important that you remember to adjust the bitrate, as MPEG tend to require higher bitrate than DIVx and XVID to get the same quality. A good place to start is around 5k, and then move it up as needed.
Putting things in perspective, good quality can be achieved with as little as 1-2k in bitrate with some codecs, but Vegas might not be able to edit the files.