Ok, i figured it out.
for the WD Live player to be able to “see” the mkv files from a computer that’s running windows 7 (i’m using the 64-bit version), you have to enable basic file sharing as an admin.
to do this, follow instructions here:
then reboot and log onto your computer as admin.
then go to the folder with your video files in it and change the sharing properties so everyone can share. then reboot both computer and WD Live player. then your computer should be visible in the network shares part of the WD Live menu and the folder with your videos in it should be there and the WD Live player can now recognize/play mkv files.
this was a super annoying problem but i’m glad there is a solution.
the codecs had nothing to do with it. it was a problem associated with file sharing in windows 7 (vista has same problems). as was stated earlier, the WD Live player has no problems with seeing and playing mkv files over the network off of a windows xp computer, or if you plug an external drive into the player via USB. it was just a problem with file sharing/permissions/etc assoc with windows 7.
hope this helps some people out there.