I have quite a few 1080p MKV files that I have been streaming to the 360 via a homeplug network. I have installed the divx 7 preview to get the MKVs to show up in Media Center. My issue is that the quality is very grainy and certainly not fluid. I know that the speed of the connection is not an issue as the homeplug is 200mb. I assume that the PC is doing the decoding here and not the 360? My PC is a quad core Athlon 64 so that is not an issue, although my Graphics Card is about 2 years old ( just a standard £40 GeForce) - could this be an issue? If the PC is doing the decoding first, what does it use? I have ffmpg and Haaji Media Spitter installed I think.
If I turn the file into a compliant AVCHD disc and play it on the PS3 it looks great so I know that the original file is a good quality one.