MKV2VOB works well for me. I use it with VMWare running Windows under OS X.
Using Quicktime Pro, Perian, and Subler, you can also convert directly under OS X. A detailed tutorial is kindly provided here: http://www.youtube.com/watch?v=bnhVcJElPoI
With either method, total time for converting a 1.5 - 2GB 720p file is < 10 mins. for a high quality result.
BTW, since installing PMS3 v1.4, my MKVs are streaming very nicely across a wireless connection. The only drawback I've found vs. MPG is that with the MKV rewind/fast forward does not work very well at all.