So this is my exact post of how I convert my MKV files to m2ts files (container swap) and then transcode DTS to AC3. The only difference in this post is that I use .m2ts as the file extension. Also mkv2vob gives you the option to create hardsubs if necessary as well.
Absolutely no codecs are installed on my HTPC at home, this is just my personal preference of how I have stored my movies for the last 3 or so years (way before I started working at Ceton).
m2ts is just a container just like mkv is so it all depends what you put in it.