The problem with WDTV Box 1st generation is that are not capable for decoding DTS sound system… so until WD team make a firmware update which solve this bug, i think the best you can do (i am doing it!) is to convert the .mkv files (usual the problem are with those files, because the HD files usual comes in .mkv format with DTS sound).
Here is a program which i am using it for converting DTS to Dolby Digital :
If you do the conversion, the image still remains HD, the only thing is the program add a audio chanel to the file. You can choose the option to delete the original DTS chanel (the file will be shorter with few 100 MB…) or you can keep the DTS audio file as well (i am doing this). So when you convert (takes about 20-30 minutes, depend on the file lengt and of course how quick is your pc…)
Don’t forget when you play back on your WDTV box the file to switch the audio chanel to Dolby Digital on Option, tab - audio! good luck!
regards from Athens - Greece