www.makemkv.com

I have a Roku 3 on the way. I only plan on using it to watch blu ray .mkv rips from a external drive via USB. From what I gather I can't play it right away without encoding it with handbrake/whatever.

Would WD TV be a better choice or does it have the same issue? Or is this a non-issue since I'd be better off using handbrake to reduce file size since picture quality is pretty close?

No, the WDTV does NOT have this issue, there's no need to recode files.

Thanks for the response.

Would encoding the original file to be playable on the Roku impact video quality much? If not I might end up keeping it.

What encoding do you need to do? I have a Roku 2 XS and haven't had to do any re-encoding with my BD -> MKV rips. It doesn't decode or pass-thru DTS-HDMA, but the disc has the DTS-HD so I just rip that rather then encoding from DTS-HDMA.