I can only recommend MKV2VOB, and I can't recommend it highly enough
http://forums.overclockers.co.uk/showthread.php?t=17924810
I use it for all the mkv files I get from the net.
It's never once had to transcode anything.
It just takes less than a minute to demux and remux the file.
That's it!
Output set to .mp4.
Literally just add the .mkv to it, wait 1 minute, the .mp4 comes out the other end, and plays in the PS3 perfectly.
No encoding, no loss in quality, all 5.1 sound etc retained and works via the PS3.
Perfect, quick, simple, free!
Vin.
I'd only make sure you have the current version, which I believe is 2.2.4. That's the version I have anyway