OK I had a look at the many settings Sony Vegas offers, and indeed there is one place, and one place only where you can export a true 120fps video (or 119.87) .
Under Render As, selecting MainConcept AVC/AAC (*.mp4, *.avc) brings up a setting called "Sony Tablet 1080p". I customized this template, and as you said lexlazootin I manually typed in 120.000. Both "Allow source to adjust frame size" and "allow source to adjust frame rate" MUST be unchecked. Checking them will result in a 29.97p video.
I opened the resulting video in Quicktime, and indeed it shows the fps as 120. Fantastic! Now its just a matter of changing the Variable bit rate settings to be ideal for 120fps playback. I wish that Quad HD was allowed in those settings, but it is not. Honestly I am happy just to get 1080p120 so no complaints here. I can post screenshots if anyone is curious. I know it is now relatively easy to get 120fps or higher playback on displays, but making video content yourself and edited is a whole different matter.