VxD based drivers are the traditional driver technique for Windows 9.x based OS'es, and have their roots in the aging Windows 3.x platforms. WDM (Windows Driver Model) is the driver technique for Win2K and higher.
Both techniques are fundamentally different, and thus not interchangable. The main difference, basically, is that VxD based drivers have to do everything with respect to manimulating the supported hardware. In the WDM model, the Windows kernel itself handles a lot of common functions between different hardware vendors, and only the low level hardware drivers need to be supplied by the vendor (hence the name miniport drivers)
With the introduction of Windows 98 SE (which more or less coincided with Win2K), Microsoft wanted to stimulate driver development for the latter platform. Because, to that point, driver development for Windows NT had lagged behind that of the Windows 9.x platforms. So, they added the Win2K driver engine to the Windows 98 SE kernel, so driver developers could concentrate on developing WDM based drivers, which are then installable on both Windows 98 SE (and ME) and Win2K.
As for supported features, that is basically dependant on the vendors in question. I would assume that the level of supported features is roughly the same, whether you use the VxD or the WDM based driver.
Jan Peter