I have always hated watching movies on my phone because I have had to convert them to m4v before watching them! What a frigin hassle apple!
However!… Yesterday while playing with my iPad, I stumbled onto a application that I wish I had known about earlier… Air Video. What it does is it lets you stream most unsupported videos(and by any I also mean MKV and AVI files) to your favorite mobile iDevice.
What about performance?… Apart from making my CPU go monkey when the video starts streaming, its actually pretty forgiving by only rendering as frequently as required:
Why not give it a shot:)