I'm describing here how to create files for progressive streaming for Flash 9 and higher with the help of Sony Vegas Pro. The goal is not to re-compress the files to FLV but perform MPEG4 streaming directly with files created by Vegas. In order to be able to stream MPEG4 files one needs to move the MOOV atom of the MPEG4 file to the start of the file. The project GPAC has a very nice command line tool called MP4Box which does the job.
An example is the trailer for my short film: My Friend Helen or the video clips at the department of Electronics and Electrical Engineering (click on the video clips tab).