I stumbled across this method as an easy way to convert videos for the iPad when they're not already encoded in an Apple-compatible format.
As far as I know, it will only work for MKVs with an h.264 video (usually the case) or ann XviD (i.e. not DivX, as far as I know, but I haven't tried it yet). It may be my naivety with understanding video formats, but I first tried this on a whim and it worked, so there must be something in it. I've used the process successfully for MKV and XviD files (by extracting and muxing the audio/video).
I originally tried it on MKVs because they tend to have the video already in h.264 format, but I then tried it out on an XviD (avi). Why? Because I remembered that XviD files are also often called MP4s, so I wondered if there was some connection to mp4 used by Apple. Seems there may be - I'm guessing XviD is some kind of generic mp4 encoding, but I really don't know - I just know this method works for me, so you can give it a try.
Basically you need a little app called MKV Tools (Download MKVtools) for Mac OS X. I'm sure there is a Windo$e equivalent (MKVExtractGUI or some such, if I recall?). You can register the app for a small fee, but it's still usable even if you don't (you just get a nag screen for about 5-10 seconds whenever you load a new video).
You also may need GoodReader on your iPad to play the video if iTunes won't allow you to transfer it directly - this is often the case! GoodReader should be standard on any iPad anyway - it is an exceptionally versatile app that can read many file formats (incl. audio and video files), and is very useful for getting files and docs on/off your iPad (iTunes or WiFi) and opening them in the correct apps on your device. I use it in this manner, as a sort of file handling app, and it works well,, ass well as being able to read things like PDF, DOC, XLS, PPT, etc. If you don't already have it, go grab it!
The method is as follows:
(1) Go to preferences and select a default output folder - all your interim files, extracts, logs and final videos will go there.
(2) Load your MKV or XviD file into MKV Tools.
(3) Select the video/audio tracks you want to included in the output.
(4) Go to the tab marked 'MP4', choose iPad from the 'Device' menu on the right, then select 'pass-thru' for the video, and either 'pass-thru' for the audio (if already in AAC format) or select to re-encode the audio (usually to AAC 2 ch.). If you want, you can re-encode the video, but that takes more time and I specifically use this method to avoid lengthy encodings. If you want to re-encode video, I also recommend using Handbrake instead.
(5) Select 'convert' and grab a coffee - but be quick! Depending on whether any of the audio needs recoding, your file will be ready quite quickly (depending on original size, within 2 minutes for a straight extract/mux, to up to only about 5-10 minutes for an XviD that needs the video extracted and the audio re-encoded to AAC prior to the mp4 mux).
Once the video is completed, you need to transfer the file to your iPad. In the first instance you can try the usual iTunes method of connecting your iPad then dragging the video onto your device. If iTunes likes the specs, it will copy the video automatically to the iOS video app and your done!
Chances are, as is often the case, that iTunes will take exception to your video (even though it seems to be an h.264 video with AAC audio!), and this will almost certainly happen if your source was XviD, as it's then not h.264. You then need to go to the 'Apps' tab on your device in iTunes and select GoodReader, then drop your video into the file list window. iTunes will copy it across without complaint. Once it's done you can open GoodReader, move the video wherever you want in your file/folder structure (if needed) and watch it!
It seems GoodReader uses the iOS system video app to itself play videos. For this reason it will only play Apple compatible files (mp4, m4v, etc.), not XviD or MKV directly. But as MKV often has an h.264 encoded video, and XviD seems to be some kind of generic mp4 format, the above method works using GoodReader. Enjoy!