I am not sure if this has been posted before. And not too sure if it belongs here, but i cant yet post in the tutorials sub forum and I thought its kinda related to HDD =P
I used tsMuxeR to convert the mkv to m2ts. Just in case its not permitted to post direct links here, google for the software.
Click "add" and locate the mkv file.
on the "Tracks" list, click on the track that has a "5.1" text on the track info
tick the "Change level" checkbox, and from the dropdown pick 4.1
and change output to "M2TS muxing"
browse save directory if necessary and click "Start muxing"
shouldnt take long, and the m2ts file is directly watchable in the PS3
Hope it can be helpful
oh 1 other thing. In my case, the file was a tad over 4GB. Since my FAT32 formatted ext hard drive wont take any files larger than 4GB i had to split the mkv video file before muxing. I used mkvtoolnix
after installing the software, run "mkvmerge GUI"
add the mkv files as above
click on the "global" tab
on the "splitting" menu, check "Enable splitting..."
I split the file by using the "... after this size" option, you cant really pinpoint which frame you want to split it on... but as long as i can watch the mkv on the PS3, its good enough for me