Very simple answer:
http://www.glennchan.info/articles/vegas/color-correction/tutorial.htm
Use the curves method described and clip illegal colors. This is appropriate for DVDs if you want consistency in picture between different DVD players and TVs. Some DVD players and TVs will clip illegal colors... others won't. If you have no illegal colors, then you don't worry about that.
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What's happening:
As far as color spaces go, you can think of them as having a volume... the bigger the color space, the more colors it can represent (*some of these colors may be nonsensical, e.g. anything calling for negative light).
Anything 32-bit, for practical purposes, is infinitely large.
Next largest in volume is Y'CbCr (often mistakenly referred to as YUV), then studio RGB (RGB with 16-235 for legal levels @ 8-bit), then computer RGB (0-255).
Because cameras record in Y'CbCr and many/most/all record some really illegal values (bad design/engineering IMO), then you get clipping occurring when you work in studio or computer RGB. (Studio RGB clips much less.) Also, if you have a cross dissolve, you can run into problems like the one you have if you don't render both sides of the dissolve.
In Vegas, the DV codec decodes to studio RGB internally so clipping happens there... a 32-bit project won't "unclip" that.
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