Hay Assassin! I'm glad to be back at AnimeA, and would be more than happy to help!
I've posted around here before a program called AlltoAvi, which was built specifically for this kind of transcoding. The creator wanted a way to watch MKV anime in AVI format, so he made this program. I believe ah.ni.may is using it now for something she needed.... Anyway, you should give it a try:
http://alltoavi.sourceforge.net/
The interface is not the most polished as some but the program gets the job done. Download it here:
http://alltoavi.sourceforge.net/download.php
and read how to use it here:
http://alltoavi.sourceforge.net/tutorial/ http://alltoavi.sourceforge.net/tutorial/tutusing.html
Enjoy!