Yes that is interlacing. I took some screenshots to help explain and should help you eliminate this (also a better way to render). I've used Vegas to edit for like nearly 3 years so hopefully I learned something along the way.
Firsty open up your Project Settings (Alt + Enter) and click the folder (next to floppy disk) to match Vegas with dimensions and framerate of your source. I did a quick red rectangle around what you need to change first of all.
http://img830.imageshack.us/img830/1651/vegas1.png
Now you wanna drop your video into the timeline (if not already). Right click the video stream and click Properties then "Disable resample". It just helps doing this. Vegas can mess with the video if you don't do this. See screenshot below.
http://img809.imageshack.us/img809/4324/vegas2.png
Now go do your editing until your ready to render (File > Render As). I don't use uncompressed AVI personaly because I don't see the point. I use "Sony AVC" which is direct H264 from Vegas and very fast. Better than mainconcept mp4 from my tests (also double as quick). See screenshot for where to click (Sony AVC then Custom).
http://img29.imageshack.us/img29/7415/vegas3.png
Now you will get the important stuff. Even if you don't decide to use Sony AVC the guidelines for other codecs are almost identical.
Video format as AVC
Frame size should be 1280x720 but you can set a custom size too.
Use CABAC
Frame rate is up to you. As you can see from earlier my source footage is 60fps but rendering at this is a waste (IMO). YouTube only outputs 30fps you see. So I usually use 29.970 (or 30.0000 if doing it manually) for this to save on upload size and rendering speed. Up to you entirely. YouTube might support 60fps soon so could be worth it.
Field order - Again set this to progressive scan. This is probably why your video looked bad. This should fix the problem. The other steps were just to make the source easy to edit and see etc.
Bit rate is up to you. Not sure what YouTube likes really but I use no less than 8,000,000 just to keep things good and have no blocking. You may want to do the same since it's a high motion scene. High motion needs more bitrate. Screenshot here.
http://img842.imageshack.us/img842/7269/vegas4.png
Audio tab should be AAC, 48,000, 128,000 and Stereo. System tab should be default to mp4 which is what you want.
Now click OK (Save template if you wish) and render. Should be all good now. Do give AVC a try. I believe it is the best.
Good luck.