jmic, good lord. I have the same webcam, and when I render it that high, it looks like a bunch of junk. I have no microphone, but the one that's built in to it, and yes. It's complete garbage. Great for skype calls and such, but not for recording audio. I'm still looking at USB mics.
Well for starters, if you're gonna render that high of a resolution, it's good to have the h.264 codec. It really allows for a large amount of information to be stored in a relatively small amount of space.
Here are my exact video/audio properties when rendering with Sony Vegas Pro 8.0:
Frame size: HDV 720 (1280 x 720)
Frame rate: 29.970 (NTSC)
Pixel aspect ratio: 1
Video format: ffdshow video codec*
Audio format: MPEG Layer-3
Attributes: 56/kBit/s, 24,000Hz, Stereo.
* The ffdshow video codec is a thingie I downloaded in order to get the h.264 codec. It has it's own properties that you can edit, but it looks rather complicated. After some dilly-dallying, I just made sure that it was encoding the video in h.264, and chose my bitrate as 6052 kbps.
Hopefully this isn't all jibberish to the folks reading, hehe.
Although I have no experience with USB mics, I'm sure they're engineered for the ease of use. I don't think you'll have any trouble if you stick to some known brands like MXL or Blue.
Edit: I render my HD videos to .avi. Also, my webcam captures video at 960 x 720 and calls it "HD".