Ahg, I hate .mkv format! It never wants to play on my computer without skipping frames and slowing down, and the only player that it'll work on, Window Media Player, won't show the subtitles. Dammit, I'll have to wait for a hardsubbed version.
Actually MediaCoder is a great program for converting MKV to AVI. Just make sure to set a proper font for the subs and the AVI file should work fine. You can also reduce the screen size, if you do it properly.