how can i convert x264, mkv and other formats to something xbox friendly?

I use Handbrake. Works great.

xbmc can read .mkv and sometimes read .x264, and yes handbrake is bad ass. if you own movies like i do and we own hundreds i have started ripping the movies with dvdshrink. First you rip the whole movie not loosing any, then re rip just the main movie file then send that into hand brake and like magic about a 1.3 to 4.1gb movie file will be available to load to hard drive. but do not pirate cause that shit will bite you in the ass. only do movies you own and can show proof of owning