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[kolinb]

That is similar to what I have done.  I use MKVExtractGUI to extract the audio track out of the MKV file.  I then convert the MKV to XVid AVI using RiverPast (video only checked).

I then use AVIMux to take the resulting XVid AVI and the audio tract into a new AVI with both audio and video. 

It is a couple steps, but the result is a great looking and sounding AVI that will play on the DSM-520.

I find WMV 9 does not look as good as XVid.

It would be really nice to have MKV & H.264 native support in the DSM-520.

If you need any more info on the converting method I used, ask away.

Kolinb

[DeathNACan]

I have had very good luck using AVS Video Converter.  It supports batch file conversion and combining different videos into one file.  The latest version 6.x also supports flv and mkv files natively.  If you have a codec installed, it will pick it up.  I am currently in the process of ripping my movies to avi and use DVDDecrpyter to get the files to the HD and then AVS Video Converter to change them to AVI files.

[DeathNACan]

Okay, there is a piece of freeware software called FairUse Wizard that does an excellent job of ripping DVD movies into Divx format which in my testing is 100 percent compatible with the DSM-520 and the Playstation 3.  They make two versions, one Freeware and one Commercial.  There are minor limitations to the freeware version.  It seems to product the highest quality rips I have seen so far.