For info, i now have my iPad working fine playing files from Mezzmo, with no transcoding.

I use XBMC which has recently been released for iPad which is a rewrite and not a port.

It plays files natively including divx and mkv files and will downscale 720p and 1080p mkvs on the fly too. subs are also supported, both in container and external.

Happy to help if you're stuck, just shout.