I'd just flat out recommend NOT using .mkv files at all. And therefore, I also recommend NOT following these instructions. I DO recommend getting your own DVD Source footage or using files that are already in the .avi container.
But, since sometimes, that's all that you can find, it's what you'll use, I guess. I've had lots of luck converting .mkv files to .avi files using:
http://www.imtoo.com/mp4-video-converter.html
Select "XVid Movie.avi" or DivX Movie.avi" BUT! The video quality degrades, even if up jack up the "output quality settings." Then again, I look back at the source .mkv files and realize that they aren't as clear as I thought they were.