The Xbox 360's video player sucks and doesn't know how to play .mkv files.
...Why are you using Matroska video files?
Because that's the format that just about every video I download on the internet comes in?
In other news, torrenters who upload videos that are in some obscure format that requires something other than WMP to play. Yes, I have VLC, but its slow, and its buggy, I only use it if I have to.
If VLC isn't working for you, it's not a problem with the program. Mine works perfectly fine. Try downloading MPC instead.
Is a simple AVI that much to ask for? MPEG? Why are there so fucking many movies out there that are either in RealVideo or Matroska format?
AVI was created in the 90's and has a lot of limitations that other formats have since fixed, and I've heard that MP4 files are hard to compress down to a decent size without losing a significant amount of video quality.
MKV was adopted by the fan-subbing community because it was one that best suited their needs, and whatever file formats they use tend to become the default for all video torrents on the internet.