My Transformer TF101 plays 720P just fine, sometimes chokes on 1080P. Since tablets are wireless, you may find that you have problems streaming 1080P, it can be a problem no matter what device you use. If you are going to store the file on the tablet, you won't fit too much 1080 on it at one time due to file size.
So,, I'd plan on primarily sticking with 720P or less content.
MX video player is a free app that plays most file types. I've played some MKVs with no problems.