So I think there is a lot of confusion between how much bitrates AppleTV can handle and how to convert from. You CAN Convert MKV to iTunes without 2 hour encoding times. Instructions:
Requirements:
Perian
QuickTime 7 Pro (Select it as a extra with Snow Leopard and it comes installed as Pro)
Video must be stereo not 5.1
Part1: Get MKV file and open with QuickTime 7 Pro.
Part2: Wait for it to buffer
Part3: Export
Part4: Press dropdown box and select Movie to MPEG4 then press options.
Part5: Make sure file format is MP4 and not MP4 ISMA and make sure Video format is "Pass Through"
Part6: Make sure Audio is pass through too
Part 7: Press ok then save
Part 8: Export takes a minute then drag MP4 into iTunes and Sync to iOS device or AppleTV
(NOTE: IF Theres no pass through option available for the MKV file in the AUDIO tab,Even if you use the audio codec like AAC while it will work in iTunes the Video will NOT Sync to iPad or iPhone 4 because of both video and audio codec issues.)
Requirements:
Perian
QuickTime 7 Pro (Select it as a extra with Snow Leopard and it comes installed as Pro)
Video must be stereo not 5.1
Part1: Get MKV file and open with QuickTime 7 Pro.

Part2: Wait for it to buffer

Part3: Export

Part4: Press dropdown box and select Movie to MPEG4 then press options.

Part5: Make sure file format is MP4 and not MP4 ISMA and make sure Video format is "Pass Through"

Part6: Make sure Audio is pass through too

Part 7: Press ok then save

Part 8: Export takes a minute then drag MP4 into iTunes and Sync to iOS device or AppleTV

(NOTE: IF Theres no pass through option available for the MKV file in the AUDIO tab,Even if you use the audio codec like AAC while it will work in iTunes the Video will NOT Sync to iPad or iPhone 4 because of both video and audio codec issues.)