you can avoid transcoding...
before you crack open your wallet...
uninstall all codec related installtions.
Haali, LAV, Klite, cccp, divx, everthing you can find concerning codecs in Programs and Features of Control Panel.
unregister any manually registered codecs.
Enable UAC if you have disabled it and reboot your system.
Install the Win7codecs
and the x64Components addon
if your OS is 64bit.
Open the installed Settings Application(s) using a rightclick on the shortcut and choose, 'Run as Administrator'
On the Help TAB, use the button to associate filetypes to the Windows players.
On the MKV TAB, uncheck the box that is disabling the DivX MF splitter.
Do the above in the 64bit Settings Application if your OS is 64bit.
Test MKV playback on the xbox.