I am working on a large 2000 X 2000 pixel PSD - I have brought it into Vegas 7 and I am working with it, but when I render it out (using Project settings 720 X 480), it is jagged and blurry. What should I do to fix this?

What are you doing to it? Are you zooming in and panning? If yes, are you using Track Motion or Pan/Crop? For zooming and panning, you MUST use Pan/Crop. Also, you should render using "Best".

I was using the Track tool for some 3D moves on the text. But I think it is because I have zoomed in too close to the text, but it still seems weird. Thanks Ed.

Can we assume that it isn't blurry/jagged while editing and previewing it? If that's true, could you get more specific about your render settings? What file format (wmv, mov, mpeg...)? What bitrate?

Go ahead and use Track Motion for the 3D stuff. But use Pan/Crop to zoom in. Pan/Crop uses the full resolution of the image. Track Motion uses the resolution of the video display. So, for example, if you were using a 2000x2000 image on NTSC DV, Pan/Crop would use the 2000x2000 size while Track Motion would use the 720x480 after it had resized to fit.