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Convert the mkv files to mp4 with 2 channel sound.
TVersity does have the ability to transcode. It does not, however, have the ability to transcode an MKV file. You will need to convert it.
Handbrake
Undisputedly the best free converting utility out there.
Yeah it will use the shit out of all 4 cores.
I can't believe nobody mentioned XenonMKV. It was made specifically for converting MKVs to MP4s that can be played on the Xbox 360 either through TVersity streaming or a USB hard drive. It's ridiculously easy to use and is almost an all-in-one package - you only have to download the NeroAACenc.exe file from Nero's website and stick it in the XenonMKV Tools directory.
It's basically a script that goes through the whole process of splitting the MKV files (if over the 4 GB limit of the Xbox 360) demuxing them into the audio and video streams, re-encoding the audio, and muxing the result into an MP4 file that the Xbox 360 can read. It'll even identify some problems with the MKV that might prevent the resulting MP4 from playing properly.
http://xenonmkv.ev98.net/
I can't believe nobody mentioned XenonMKV. It was made specifically for converting MKVs to MP4s that can be played on the Xbox 360 either through TVersity streaming or a USB hard drive. It's ridiculously easy to use and is almost an all-in-one package - you only have to download the NeroAACenc.exe file from Nero's website and stick it in the XenonMKV Tools directory.
It's basically a script that goes through the whole process of splitting the MKV files (if over the 4 GB limit of the Xbox 360) demuxing them into the audio and video streams, re-encoding the audio, and muxing the result into an MP4 file that the Xbox 360 can read. It'll even identify some problems with the MKV that might prevent the resulting MP4 from playing properly.
http://xenonmkv.ev98.net/