Step by step writeup here.

My adapted method. Install the Matrox DVCPRO codecs from here.

Download Prism Video Converter

Using Prism, convert the highdef footage to the Matrox DVCPRO HD (dhv1) codec.

iIn VirtualDub, open up the new file, and stabilize using Deshaker, and re-save using Matrox MPEG-2 I-frame HD (m701)

Open up the video in Vegas and edit it.