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Thanks for answering my post.
I did again convert the MKV file to an AVI with VH and as I expected, it pixelated also. This is a 1981 movie which I thought would have been a different format considering it's age.
I have checked the internet for software that would successfully convert MKV but I'm dubious after what you have told me. I think I will wait and see what happens in the future.
Thanks again.
jaybass