Guys, mkv is a container file, it's not a compression format. As a container file format, it can hold a wide variety of compressed audio and video files as well as subtitles in one file. For HD, it often contains H.264/AVC compressed files. There are downloadable mkv files as large as BD originals at 30-45GB on a one-to-one-conversion, It compresses very efficiently that even at half the bitrate of m2ts Blu-ray files (also a container file containing h.264/AVC or VC-1 compressed video), you still get gorgeous images that are better than your standard DVDs.
BTW, image quality has little to do with resolution. Video quality hinges on bitrates, not whether its 720p or 1080p or SD. You can even have 1080p files fit in a standard DVD5 with less than 2 GB file size. It's all about bitrates. Remember those pirated DVDs 3-4 years ago with crappy images? Check their bitrates and you'll get something like 1-3mbps when the originals have 4-6mps bitrates. Consequently a 480 movie meant for DVD9 could fit in a DVD5 a half their original bitrates. Same with 1080 HD. Most downloaded mkv files use H.264 with variable bitrates that are set below the 30-45mbps bitrates in Blu-ray discs. Even a 1080p file can just have 4GB file size or lower because the encoder was set at low variable bitrate encoding. But thanks to the wonderful H.264 encoding algorithm, you may not discern quality difference in some materials or in most scenes, especially those with static or slow moving ones. But it can be discernible in fast moving scenes. And often not discernible in screens 32" and below. But that's just my eyes.
Also, pls note that VGA is analog and most high end PCs especially those used in graphics or video editing workstations use DVI connection. With VGA connection, the PC will convert its native digital video signals to analog first before passing over the VGA cable. At the other end, the LCD screen will convert your analog signals to digital. So you can expect some signal losses in the process. Just go digital all the way for video. HDMI is DVI plus digital audio.
If I put 2 identical LCD TVs in front of you, one playing from a Bluray player and another playing an MKV file of the same movie from a PC and you cant see the cables and player/PC... would you be able to tell the difference?
It depends on the bitrates. If the mkv file has the same bitrate, you won't. But there's a good chance, depending on the material, you won't see any difference even at lower bitrates, say 15mbps, especially if the LCD TVs are 32" and below viewed 6 feet away.
