If I HAD to watch an MKV, I used VLC Player, get out of my seat and just deal with it.
Since installing XBMC however, MKV's work fine (Gundman Wing), I even set it to play only the English Audio, which is a problem I was having with watching back to back episodes because it would either switch to no audio at all or to the default in this case the Japanese audio.
Besides, all my TV Shows and Movies that aren't recorded by WMC are on the server now, so why would I want to complicate my setup even more with codecs?
I went down the codec road and my problems with that Gundam Wing set we never completely solved, even following the directions by Assassin or the suggestions by the Shark007 developer that post on here.
As I said I avoid MKV for the most part, but the ones I do have play fine now.
PSN - DJFourMoney