im currently using RipBot264, to convert bluray files to play on my ps3, it can also convert mkv files, i find it great and it will give you the same quality as the source video, you can also force many subtitles and different audio streams, you'll have to download some other apps for it to work perfectly such as TsMuxer and eac3to and make sure you have the latest java update.
hers a detailed link:
http://www.recipester.org/Recipe:Rip_Blu-ray_Movie_with_RipBot264_19858900
this software is originally intended to convert blu rays but it can be used with your situation and will give you great results.