Have a look at some forums online, a number of people have posted on this in XBox forums especially because they want to watch dodgy movies downloaded in .mkv containers on their XBox which requires .avi, .mp4 or .wmv giving a few options. I believe DivX have a development solution which will transcode .mkv to Windows Media Centre in real time if that's what you're looking to do.
In fact a quick Google...
http://labs.divx.com/node/14831