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Here's my experience with streaming to PS3:
MPEG2 files have no size limit. Audio should be AC3 or LPCM.
M2TS files have no size limit. You can stream anything that's MPG2 or AVC. VC1 doesn't work. Audio: AC3 and LPCM works. TrueHD,DTS doesn't work.
So i suggest you convert 720p and 1080p MKV files to MPEG. I use Pavtube. Where appropriate I'd like the video file to simply be copied (as the freeware program tsMuxer does - saving a lot of time) and have DTS audio converted to AC3 so it works OK on the PS3 (which tsMuxer doesn't do).
I am using Video Converter softwar to convert and stream MKV videos on PS3. If you have no idea which format and codec that PS3 supports, you can set PS3 as destination device. The software will automatically convert MKV to PS3 compatible format.
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