After all this time I've solved this one. A tiny bit clunky but not the last time I'll have to use spit and gum to hold things together!
Only trick is you have to ultimately do it in the SQL database itself.
As a reminder, I've tried making vendors and even when making one and adding a product I got the same message when trying the vendor only discount rules.
I still don't have the exact steps down but basically I looked at an existing discount by category which was allowed regardless of whether vendors were specified or not. I looked at it in the database and noted that it said ""rule_percentoffitemsincat" in the discounts table.
So then I went to the /modules/rule folder and noted that they all appeared to be there:
So I edited the rule for, in this example, to "rule_xamountoffwhenxormore".
Now first the expiration seemed to cause issue so I deleted it in the database but that still didn't appear to work so I went into the Admin. and set a maximum number of uses to 4 (I'm sure you could just as easily set an expiration date but too late to test everything right now) and the discount that normally couldn't be selected worked perfectly.
NOTE: I think the above issue was because I already had an item in the cart. Try deleting cart and re-adding product. If I don't forget I'll clean up the post but time for bed!
So I set up a test for purchase over $100 gets $5 off and it worked great. Tried percent off total and that worked too.
I'll update this if I can later when I get the exact perfect steps but I think this gives enough of an idea (given anyone doing it will already have to be a little bit SQL savvy) of how to take a discount rule and convert it to one normally set only for each individual vendor in the multi-vendor.