SVG and (X)HTML

The way to do vector graphics on the Web is SVG.

For an SVG document that is an image or animated image, without interaction, embedding in is suitable (this is supported in experimental builds of Opera and Safari).
For an SVG document that is a purely presentational decuration, referencing as a CSS background image is suitable (this is supported in experimental builds of Opera and Safari).
For an SVG document that supports rich interaction (and has more application-like properties) or that requires scripting interaction between the containing HTML document and the SVG, either <object> or <iframe> is suitable. This works today in the latest shipping versions of Safari, Opera and Firefox. <object> even works in IE with a suitable plugin installed.
In XHTML, the <svg> element in the SVG namespace is a suitable way to embed any kind of inline SVG directly in the same document. Many are working on a design to let this work in HTML as well. See this research page.
In both Classic and XML serializations of HTML, SVG content can be dynamically generated by script and inserted into the DOM at runtime, with an svg:svg element as root. This is perhaps closest to the way <canvas> operates. This is supported by Safari, Opera and Firefox and is used by popular JavaScript libraries, such as the Dojo charting toolkit.