Firstly dude, it's MKV, not MVK.
For HD video rips, more and more people are encoding them using H.264 in an MP4/MKV container simply for filesize as well as "overall video quality". You can still get HD video rips in XViD/AVI, however they're going to likely be at least 2-3 GB bigger than it would be if it had been encoded with H.264. On top of that, and as much as I like XViD for it's ease of playability, the video quality just won't be as crisp and "hi-def".
As long as you take good care of your computer and you keep it properly updated to run at it's optimum efficiency, there really should not be too much of a difference between an MP4 and MKV that was encoded with the same codecs. Personally, I like MKV files, particularly if the video is a BluRay rip. I find that overall, MKVs run smoother/don't lag as much on my computer.
So to answer your first question, no it does not necessarily HAVE to be MP4/MKV, however if you really want an HD-type experience, you SHOULD be sticking with videos that are MP4 or MKV, encoded at a resolution of at least 720, that are using H.264 (and not XViD/DivX).
