Conversion is fine and all but it's still not as convenient as simply browsing to the a shared folder and playing whatever is in there immediately.
In this circumstance, it wont even take 5 minutes to do the needed conversion.It takes a lot longer to convert your movies than 5 minutes.
I am not positive but I am pretty sure I've been successfully watching MKV files using PLEX media server.
I just played Hugo using PLEX and it's a 720p 6gb .mkv
It plays well and stutters rarely.