You could try using GOTSent
which converts mkv files directly to mp4. This should make the file able to stream to the Xbox.
Another tutorial suggests that you could use a program like Handbrake
to convert to DivX in order to retain HD format, then convert to WMV then convert to avi using the h.264 codec. I'm not sure all of that conversion is neccesary, you may just be able to switch directly from mkv to .avi, although you may lose HD status.
Also, you can use TVersity
to stream to Xbox.
It would probably be much easier just to extend straight to your plasma instead of all this work around stuff. If you want to do that, you should be able to plug straight into your TV via HDMI if you have it.