Heluuu
Yeah been there, done that
I wont pretend i am an x.264 expert, far far far from it, my experience stretches to simple demux and converting to avi, and often resulted in the sources ending in the bin, so please take my advice with a grain of salt.
I dont use the format myself at all because of the lacking support in standalones.
If your going to need some codecs...depends really, some encoders come bundeled with the needed codecs or has it internalized while others, like megui depends on whats installed on your system. Best way imo is to load the file and see what gives.
You can usually get to the subs in the stream menu of virtualdubmod to either demux them and use them as standalone subs or to deactivate the stream.
For streams like that id suggest leave the mkv intact (no demux)and use automkv to convert to avi, or possibly use megui.
Both can look daunting at first but their real easy when you get to know them.
Megui are more dependent on installed codecs though so i think automkv has the advantage.
Possibly you can use winavi, convert x to dvd or another of the commersial encoders with support for h.264 and aac, unfortunately the implementation are often buggy and since there are som many x.264 variations and encoding profiles and the codecs are updated very often, in my experience they often fail or produce nasty artifacts etc.
heres some avc information
http://forum.doom9.org/showthread.php?p=674815#post674819
heres some aac information
http://forum.doom9.org/showthread.php?s=&threadid=68300#post424070
Heres automkv
http://forum.doom9.org/showthread.php?t=113811
Heres megui
http://sourceforge.net/projects/megui
forum thread
http://forum.doom9.org/showthread.php?t=96032
Thats a lot of reading for a small encode..no
Hopefullt automkv will sort it for you so you can leave it at that
Let me know how it goes, in the mean time ill get a little updated on what exact codecs etc you will need.