That sounds a lot like the “optimize stills” issue- Encore 1.5 and earlier can’t handle that setting in video files.
I’m not familiar with Vegas, but see if you can export without optimizing stills (in other words, export the AVI so each frame has the still, rather than 1 still and instructions to hold it for x number of frames). If you can get an AVI out that doesn’t have this “optimization”, Encore 1.5 should be able to handle it. If Vegas can’t do that, try transcoding to MPEG from there (if Vegas supports it), and then import the MPEG into Encore.
You could also upgrade to Encore 2.0, which supports “optimized stills” and offers many more and cooler features.