I have streamed high bit rate (35Mbps) mkv files over my wired network, and it seems to play fine, although I didn't watch the entire movie. It might depend on the router also, I don't know. Wireless I don't think will work with high bit rate movies, but I haven't tried.
I prefer putting it on a hard drive that I have attached directly to the usb port on the media player.
As for not recognizing mkv files, it might be what Tony said. I use the freeware DLNA program called Serviio. It works with mkv files, but not ISO files.