…will their be a loss in quality…
Most definitely. First of all, DV is a 4:1:1 signal while MPEG-2 is 4:2:0. Check out Adam Wilt’s site if these numbers mean nothing to you.
Secondly, MPEG-2 further compresses the original DV signal by at least a 4:1 margin, if not more. Bring thuis back into Vegas and, notonly is is harder to edit, it gets recompressed, further deteriorating the signal.
If you’re short on storage space, buy another hard drive and an external box. You can use either Firewire or USB as both work fine. This is an inexpensive option that will more than pay for itself in improved picture quality in the final product.