It can, they just need to be remuxed/reencoded (the former being a much more ideal solution). I take it you've tried things like MKV2VOB/Tversity etc?
I don't wanna have to reencode everything, but transcoding on the fly would be good, though Tversity was giving me "this data is corrupted" on my PS3 earlier when trying to stream a MKV.

A lot of games are, however the biggest games are undoubtedly Gears of War 2 and LittleBigPlanet and neither are on PC. Fable 2 isn't exactly a small game either.
I'd rate all 3 above an add-on pack for a game, but WoW has a lot of players.
Judging by how well Gears of War sold on PC I don't think many PC gamers are all that fussed.
Fable 2 isn't that good either I don't think, not as good as the first at least.
See, that's the thing, it's not really just an addon pack it's gonna change the entire game.
It's not some crappy addon pack like The Sims or a Command & Conquer campaign.