The media gallery application plays mkvs but some do stutter every 5-10 seconds if there is a fast moving scene. I haven't tried using a 720p or 1080p HD-rip because I wanted to shrink the movies down first. I used a program called RipBot to set a custom resolution (APAD - 1024x600) and I converted the DTS tracks to 128kbps stereo. I chose the ipad profile (3.0) and used the CQ (constant quality) method to encode. I used the default of 22 for the re-encode and the quality is very decent when watching animation. Going to mess around with all the settings this weekend and will post what works best here.