Depends on the video codec that the MKV contains. H.264 is handled with hardware decoding. H.265 apparently works in some limited cases, but I wouldn't count on it. VC-1 (WMV9) is supported for hardware decoding, after purchase of a separate license.

The audio is all software-decoded, but I think it can be configured for passthrough directly to HDMI, for at least some formats.