I've been dealing with a performance hit on time line playback in Vegas Pro 8 if I set the preview window to anything above Preview 1/4 quality.

Will NeoHDV resolve this issue and does it provide any additional performance and/or stability benefits, (stability, color grading, etc) over editing native m2t Long GOP files?

if you can afford its invaluable. I never capture anymore to vegas, I use cineform and capture m2t, then go back and convert them to avi saving the m2t. it seems faster this way, and if you may not want to convert all the clips you dont have to. I put most of my stuff back to tape thru cineform, its flawless, to view on my hd tv thru hdmi. I really appreciate what my Sony hvr v1 is capable of when I see it on the hd tv thru hdmi.