[Quarkboy]

It can play h.264 but not aac audio?

That's highly unlikely. What's more possible is that its mkv demuxer can't handle aac, but it could probably play it back as a separate .m4a or .mp4 file.

Can your player handle mp4? You could try remuxing the mkv files into mp4 files using a program like "yamb". It won't work for variable frame rate stuff, but it should work for other things, and isn't complicated.