In my experience, you'd better use a top Video Converter to help you convert Videos like MKV to H.264 MP4 for playing on iPad 3. It has no limit conditions and works fast. The most important is that you can freely choose the output format in different video quality.
I don't keep a server running. I just convert or rip with Handbrake. Works really well. Handbrake has a preset for iPad. With 64 bit Handbrake on my MacBook it converts quickly. I even rip my DVDs that I own. You have to install a library for unlocking DVDs but handbrake prompts you to do that. Works great. Of course, you have to transfer via USB.
Does Handbrake really convert AVI Files? I did not know that....
What do you mean by this? I have VLC on my Mac, but how does that help you watch videos on your iPad?
There was a VLC client for iOS back in the day... Apple pulled it from the App Store several years ago... but if you managed to get it before it was yanked, you can keep using it... there are a few of us still around...
iPad 3rd Gen now supports 1080p MP4. More specs quoted from http://www.apple.com/ipad/specs/
Video formats supported: H.264 video up to 1080p, 30 frames per second, High Profile level 4.1 with AAC-LC audio up to 160 Kbps, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats; MPEG-4 video up to 2.5 Mbps, 640 by 480 pixels, 30 frames per second, Simple Profile with AAC-LC audio up to 160 Kbps per channel, 48kHz, stereo audio in .m4v, .mp4, and .mov file formats; Motion JPEG (M-JPEG) up to 35 Mbps, 1280 by 720 pixels, 30 frames per second, audio in ulaw, PCM stereo audio in .avi file format
MKV is not supported format. Refer to the below guide if you'd like to preserve 1080p quality:
The best method that i use to play mkv files on iPhone is to use "iFunBox". First you have to install "VLC" app in your device from "App Store". Now simply connect your device whether it is iPhone or iPad etc, and launch iFunBox. On top left corner there is an option "iFunBox Classic" click on it and your connected device will be there double click on it and look for an option "Raw File System" and open it. Then look for "User" folder and open it then open "Applications" folder. All apps installed on your device will be listed there. Now look for "VLC" app and open it now open the folder "Documents". The only thing that you have to do now is to copy your mkv or other format files in this folder by using "Copy from PC" option. After your files been copied open "VLC" app in your device and play the files and VOILAAAAA.....