Looks like the spring update of XBOX live added MKV support. I was surprised, you can now watch your .MP4 files and full HD MKV files natively within the Media Center XBOX shell.
Too bad they didn’t fix the flaw that is seriously making me consider Apple TV …. You must be logged onto XBOX Live (with an active connection, you can’t be logged into your profile) to play media content. If your internet is acting funny, it will ask you to redownload the patch.
So one positive, one negative.