I don't much care for VLC, so don't use it except for testing purposes for the forum. That said, no problem here with 720p .mkv files, fully upgraded KDE 2010 release, as of today.
[root@fatman ~]# uname -r2.6.38.6-pclos1.a64
VLC version;

Playing .mkv file from the History Channel Universe series;

Sorry about the picture size... that's what it opens to when selecting
Open With --> VLC media player from the right click menu.

It gets a bit rocky on parts of the 1080p sample, (video staggers, severe artifacts, etc) while SMPlayer plays it perfectly, which is why I prefer using SMPlayer as my default.