MKV is a container format, and like MP4 and MOV and AVI it says nothing about how the video or audio are encoded within.
MKV is becoming a very popular video container format, and is used almost exclusively for bluray ripping lately. Since it's relatively new and not yet widely adopted, many video players and video converters lack full/good/any support for the container.
If you're getting pixilation after converting, it's impossible to say if the source video is bad, the conversion was done poorly/wrong, or the player is having problems with the new format.
This will be very difficult for us to help you with because there are so many variables to consider. Add to that you are converting the video not once, but twice. (once with visual hub and once with toast)
I suggest updating his computer to play the mkv file. vlc plays most mkv files. It doesn't handle jumping around well though, so just let it play.
