So I figured out, what I think, is the best solution (for me) for movie playback. Simply transfer my .mkv files to my "movies" folder. Play using MX Video Player (with arm 7 codec installed from the market). Make sure it's playing on HW mode, and it's great.
If I have to fast forward or rewind, it will get out of sync. A quick and perfect fix is to tap the screen, change HW to SW, then back to HW. And it's in sync again. If there is no sound, I tap on the sound icon underneath "HW" and choose the right audio track, and perfect!
Colors pop, and I think it's the same quality as DVD Catalyst, if not a smidge better.
Watching season 1 of Boardwalk Empire on it.
Edit: I just saw that it's been updated today for better ICS support, too!
DVD Catalyst is great for encoding, but it takes a bit too long for my taste. I'll still keep it, though, to encode mp4's for my wife's iPad.