I have exactly the same problems as described. (WD4300).
Just some comments:
The route does have an SMB client. (at least some details for USB network config are in the FAQ manual, but it does not help in this case.
The direct address to the router sharedrive is: \192.168.1.1\volume1 (but I found no option to key in this directly into my WD TV Live), there is NO option in the router to set the workgroup, PC will also not LIST this share but can connect when directly accessing the share address (see below)
MKV (in my case MP4 - H264) won’t play back by media server (only audio) but it’s strange, because I see the video in the background of some menus.
You can connect the HD drive to the WD-TV live and use it as NAS just as if connected to the router and connect as network drive on the PC
(This works with my hardware. In this case I observe the USB connection to be lost when I write (download) and playback video at the same time. That’s why I was trying to use the setup as described here in the beginning. Maybe try if it works for you)